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The Week in the Neighbourhood

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Madona Gasanova
16.07.23 22:18
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Turkey raised the tax on petrol to help to fund a $42.2 billion increase to its 2023 budget after devastating February's earthquakes and the May presidential election sent spending soaring. Azerbaijan's promise to double its annual gas exports to Europe by 2027 may be a step closer to realization with the news that BP has found new gas reservoirs beneath its existing Azeri–Chirag–Gunashli oil field (ACG) in the Caspian Sea. Armenia seeks to diversify exports and eliminate dependence on one market.

Here is a rundown of the latest economic, business and political developments around Georgia's neighboring Turkey, Azerbaijan and Armenia during the last week.

Turkey

Turkey raised the tax on petrol to help to fund a TL 1.12 trillion ($42.2 billion) increase to its 2023 budget after devastating February's earthquakes and the May presidential election sent spending soaring. The additional fuel tax will help with a budget deficit that jumped to TL 263.6 billion ($10 billion) in the first five months of the year, up from TL 124.6 billion ($ 4.8 billion) a year earlier. The wider deficit was large because of increased spending ahead of the May elections when President Recep Tayyip Erdoğan was elected for a third term, as well as on rebuilding work after the earthquakes in southern Turkey. The quakes claimed over 50,000 lives, toppled hundreds of thousands of buildings, left millions homeless and severely damaged the southeastern region's infrastructure. Business groups, economists and the government have said rebuilding could cost more than $100 billion.

The unemployment rate in Turkey edged down 0.5 percentage points month-over-month to 9.5% in May, official data showed. The Turkish Statistical Institute (TurkStat) data also showed a seasonally adjusted measure of labor under-utilization fell 1.2 percentage points to 22.5%. The labor under-utilization measure has slid after peaking at 29.6% in January 2021 due to the economic fallout from pandemic measures but has risen slightly in recent months. TurkStat data showed the labor force participation rate in May dropped to 53.6% from 53.9% a month earlier.

The Turkish economy’s total turnover rose 2.9% on a monthly basis in May. It followed a 3.8% month-on-month hike in April. The services sector registered the largest monthly hike of 4.7% in May, followed by construction at 3.5%. Turnover in the trade and industry sectors edged up by 3.2% and 1%, respectively. On an annual basis, the total turnover index soared 52.7% in May. Industry increased by 34.9%, construction by 102.8%, trade by 58.8% and services by 62.3% on annual basis in May.

Members of Turkey’s International Investors Association (YASED) are planning for $7.1 billion (TL 185.65 billion) of direct investment in the country in the next six months, a top executive said. Turkey attracted around $13 billion in foreign direct investment (FDI) in 2022, according to the Presidential Investment Office data, and officials have said it seeks to take a 1.5% share in global investments in the coming period.

Turkey's industrial production posted a slight decline of 0.2% in May on an annual basis, while it was up by 1.1% on a monthly basis. Two out of three subsectors declined on a yearly basis. Mining and quarrying index decreased by 7.1%, manufacturing index increased by 0.6% and electricity, gas, steam and air conditioning supply index decreased by 1.3% in May 2023. The production of low- and medium-technology declined in the month while medium-high and high-technology increased. On a monthly basis, all subsectors saw increases – mining and quarrying by 2.4%, manufacturing by 0.9% and electricity, gas, steam and air conditioning supply by 2.4%.

The loans received by Turkish private sectors from foreign countries totaled $155.4 billion as of May, down by $2.5 billion versus the end of last year. Long-term loans amounted to $146.4 billion, down by $3.3 billion, while short-term loans totaled $9 billion, increasing $849 million from the end of 2022. Some 59.6% of the long-term loans were denominated in US dollars, while 35.5% were in euros, 2.3% in Turkish liras, and 2.6% in other currencies. On the short-term side, the euro's share was 39.3%, while the dollar's was 36.9%, the lira's 17.1%, and other currencies' (6.7%). The Central Bank said $40.9 billion of principal repayments would be made over the next 12 months by the end of May.

The number of house sales in Turkey totaled 565,779 in the January-June period of this year, down by 22.1% on a yearly basis. The housing unit sales were also down by 44.4% year-on-year in June to stand at 83,636 units. The number of mortgaged house sales amounted to 121,530 units in the first half, while other sales totaled 444,240 units. These figures were 13,463 and 70,173 in June, respectively. Foreigners bought 19,275 houses in the first half of 2023, while the number of houses bought by foreigners in June was at 2,625 units.

Turkey's current account registered a deficit of $7.93 billion in May, more than forecasted. The shortfall widened from $5.4 billion in April and $5.8 billion in May 2022. The gold- and energy-excluded current account saw a $1.3-billion deficit in the month, the central bank said. The trade deficit, a major component of the current account, came in at $10.5 billion in May, as the cost of devastating earthquakes in February and gold imports weighed on the trade balance. The services sector recorded a net surplus of $3.9 billion in the month, the data showed. Under the service sector, travel had a net inflow of $3.1 billion in May. In January-May, the current account balance registered a $37.7 billion deficit. In 2022, Turkey's current account deficit was around $48.77 billion.

Turkey’s President Recep Tayyip Erdogan has agreed to back Sweden’s bid to join NATO. After talks in Vilnius, Lithuania, with Erdogan and Sweden’s Prime Minister Ulf Kristersson, Stoltenberg said Turkey had agree to move forward. Sweden, along with neighboring Finland, abandoned its longstanding military neutrality and applied for NATO membership after Russia invaded Ukraine in February 2022. But Stockholm's entry into the military alliance has so far been blocked by two members, Turkey and Hungary. Earlier, Erdogan added to the list of demands he wants fulfilled in exchange for finally backing Sweden's accession to NATO. Speaking just hours before meeting Kristersson, Erdogan suggested if the European Union wanted Sweden in NATO, it should let Turkey into the EU. Membership talks between the bloc and Ankara began in 2005 but were put on hold indefinitely in 2016 after years of democratic backsliding, human rights abuses, and provocations under Erdogan. After the meeting between Stoltenberg, Erdogan and Kristersson, the three said, "Sweden will actively support efforts to reinvigorate Turkey's EU accession process, including modernization of the EU-Turkey Customs Union and visa liberalization."

Azerbaijan

Azerbaijan's promise to double its annual gas exports to Europe by 2027 may be a step closer to realization with the news that BP has found new gas reservoirs beneath its existing Azeri–Chirag–Gunashli oil field (ACG) in the Caspian Sea. BP has confirmed to Eurasianet that the appraisal well it drilled to a depth of 4,500 meters below the ACG field has identified "deep-lying gas reservoirs" and that production could start as early as next year. The company did not state the size of the reserves it had identified or how much gas it expected to be produced but said that it had installed gauges to collect pressure data and is analyzing this information with the aim of elaborating an "optimum development concept."

In January-June 2023, the consumer price index in Azerbaijan was 112.7% compared to the same months of 2022. This figure was 13.1% in January-May 2023. The consumer price index for food products, beverages, and tobacco products was 115.1%, for non-food products - 111.4%, and for paid services provided to the population - 110.5%. In June 2023, the consumer price index was 99.1% compared to the previous month, 110.6% in comparison to June 2022.

In the months of January-May of this year, the average monthly nominal salary of hired workers in the economy of Azerbaijan increased by 11.1% compared to the same period last year and amounted to 917 manats ($539.41). As of June 1, 2023, the number of hired workers in the country's economy reached 1,726,300 people (+20,300 people or 1.2%), with 898,600 employed in the public sector and 827,700 in the private sector.

In January-June 2023, Azerbaijan imported 48,373 cars for $753.3 million, up 37.5% and 63.4%, respectively, from a year earlier. In 6 months, the import of vehicles designed to carry 10 or more people, including the driver, decreased by 4.2 times to 77 units (worth $5.2 million), while the import of passenger cars and other vehicles, mainly designed for transportation of people, increased by 38.8% to 44,937 units (worth $679.5 million US dollars). Of these vehicles, 7,329 (worth US$159,582 million) are hybrid electric vehicles and 1,124 (worth $46.8 million) are electric vehicles. This means an increase of the first by 17.9%, and the second by 7.3 times. In addition, the import of trucks increased by 37.1% to 3,161 units (worth $47.461 million), and the import of special purpose vehicles increased by 22.2% to 198 units (worth $21.089 million).

Azerbaijan's foreign trade surplus was close to 10 billion dollars in six months of the current year, said President Ilham Aliyev as he addressed a meeting dedicated to the socio-economic results of six months of 2023. "The vast majority of countries import more than they export. In our case, however, it is the opposite – in the first six months of the year, our surplus was close to 10 billion dollars. If these rates are maintained, imagine what figures we will reach by the end of the year, and, of course, another advantage of this is macroeconomic stability,” the head of state underlined."

Azerbaijan's Foreign Ministry has criticized Moscow, saying it "did not ensure full implementation" of an agreement that instituted a cease-fire between Azerbaijan and neighboring Armenia in September 2020. In a statement on July 17, the ministry added that Moscow "did nothing" to stop Armenia from sending military supplies to Yerevan-backed separatists in Azerbaijan's breakaway region of Nagorno-Karabakh. The statement came one day after Azerbaijani President Ilham Aliyev met in Brussels with Armenia Prime Minister Nikol Pashinian for EU-sponsored talks aimed at ending the decades-old conflict over Nagorno-Karabakh. It was the sixth meeting between the two men over the last two years. The meeting was hosted by European Council President Charles Michel, who issued a statement following the meeting describing the talks as "frank, honest, and substantive."

Armenia

Armenia expects to host over 2 million tourists this year. If the foreign tourist inflow to Armenia remains as high as it is now, it may well pass the 2 million mark by the end of this year, the head of the Tourism Committee Sisian Poghosean said. "The inflow of tourists to Armenia turned out to be unprecedented in the first half of the year, amounting to 1 million. This is the highest figure recorded in recent years. If we compare it to the frist half of 2019, which was considered a record year, the figure is now 30% higher. In 2019, some 1.9 million tourists visited the country," Poghosean said. According to her, the Tourism Committee is making efforts to present Armenia in the best possible way all over the world, thus increasing its recognisability. Thus, the representatives of the sector are encouraged to showcase their products and services in various tourism exhibitions and relations are being established with the leading tourist countries and airlines. Russian tourists account for about 52% of the total number of visits. They are followed by citizens of Georgia with 11% and Iran with 6%. Nevertheless, the number of tourists from other countries, in particular, France, Germany, UAE is also growing, Poghosean said.

The Armenian-Russian trade is very likely to surge by 60% in 2023 (as opposed to 2022), Armenian Economy Minister Vahan Kerobyan said. The minister specified that last year Armenia's trade turnover with Russia grew to $5 bln and this year there is an impressive growth of indicators. "Armenia economy is growing at double-digit rate now and I think the trade with Russia will grow by 50-60% at the end of the year," Kerobyan concluded. The minister emphasized that Russia is the number one trade partner for Armenia. According to Armenia's National Statistical Committee, Armenia’s foreign trade turnover in January-May 2023 soared by almost 87% year-on-year to over $7.3 billion. The trade with Russia grew by 2 times during this time span to over $2.5 billion.

Armenia seeks to diversify exports and eliminate dependence on one market, Deputy Economy Minister Rafael Gevorgyan said. Speaking at an awareness-raising event "Export Promotion Tools: Swiss GSP for Armenian Exporters" on Wednesday, Gevorgyan said that diversification of exports with entry into different markets, including European, American and Arab markets, is extremely important for Armenia today."At the moment we are at the stage of creating a more comprehensive export strategy to be based on diversification of export markets, as we don't want to depend on any market, as well as diversification of the export basket: we don't want to depend on one type of goods, especially mining products, whose share in the total exports is decreasing," he said.

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