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Caucasus Business Forecast Report Q4 2008

Published by: Business Monitor International

Published: Jul. 28, 2008 - 53 Pages


Table of Contents


BMI Ratings
BMI Risk Ratings - Armenia
BMI Risk Ratings - Azerbaijan
BMI Risk Ratings - Georgia
Europe - Ratings League Tables
Executive Summary
Chapter 1.1: Political Outlook - Armenia
Domestic Politics
Growth To Remain Strong, But Political Risks To Elevate
While we are concerned by the persistence of opposition rallies and protests in Armenia following the February
presidential election, we believe that these are unlikely to pose a major threat to the country’s political and
economic outlook.
Foreign Policy
Tenative Thaw With Turkey, But Russian Relations Remain Key
While we view the apparent thaw in Armenia’s relations with neighbouring Turkey positively, we caution that a
resolution of the tensions between the two sides should not be expected in the medium term.
TABLE: ARMENIA POLITICAL OVERVIEW
Chapter 1.2: Economic Outlook - Armenia
Economic Activity
Positive Outlook Over The Medium Term
We retain our positive view on the Armenian economy and forecast that growth will come in at an impressive 9.6%
in 2008, and will average a robust 7.2% from 2009-2012.
TABLE: ARMENIA - ECONOMIC ACTIVITY
Chapter 2.1: Political Outlook - Azerbaijan
Domestic Politics
Energy Reserves Crucial To Foreign Policy
Russian President Dmitry Medvedev has made a concerted effort to persuade his Azeri counterpart Ilham Aliyev
to agree to sell Azeri gas reserves exclusively to Russia.
TABLE: AZERBAIJAN POLITICAL OVERVIEW
Chapter 2.2: Economic Outlook - Azerbaijan
Fiscal Policy
Rising Fiscal Spending A Concern For Inflation
On the back of rising oil prices, we have revised our Azeri government revenue and expenditure forecasts to the
upside, though we are holding to our view that the surplus will come in at just under 1% of GDP.
TABLE: AZERBAIJAN - FISCAL POLICY
Chapter 2.3: Business Environment - Azerbaijan
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
Institutions
TABLE: BMI LEGAL FRAMEWORK RATINGS
Infrastructure
Market Orientation
TABLE: LABOUR FORCE QUALITY
TABLE: EMERGING EUROPE
TABLE: BMI TRADE RATINGS
Operational Risk
Chapter 2.4: 10-Year Forecast - Azerbaijan
The Azeri Economy To 2017
Impressive Growth To Remain Through To 2017
Over our 10-year forecast period to 2017, we believe that Azerbaijan’s economy will continue to grow at an
impressive clip.
TABLE: AZERBAIJAN LONG-TERM FORECASTS
Chapter 3.1: Political Outlook - Georgia
Domestic Politics
Policy Continuity Expected
President Mikhail Saakashvili’s political party United National Movement has won a landslide victory in the
Georgian parliamentary election on May 21.
TABLE: GEORGIA POLITICAL OVERVIEW
Foreign Policy
Tensions To Remain But War Unlikely
Relations between Georgia and Russia have become increasingly strained in recent months, specifically over
the issue of Georgia’s separatist regions of Abkhazia and South Ossetia.
TABLE: GEORGIA POLITICAL TIMELINE
Chapter 3.2: Economic Outlook - Georgia
Economic Activity
Room For Improvement In The Economic Sphere
Georgia’s long-term economic risk rating stands at 47.9. While the country performs highly in some subcomponents
of our rating, its overall score is pulled down by several problems facing the economy particularly the high
current account deficit and the quality of fiscal spending.
Chapter 4: Special Report
Mega-Urban Regions
TABLE: THE WORLD’S 30 LARGEST URBAN AGGLOMERATIONS
TABLE: THE WORLD’S RICHEST CITIES IN 2020 BY GDP
TABLE: THE WORLD’S FASTEST GROWING URBAN AREAS BY POPULATION

Abstract

Growth To Remain strong, But Political Risks To Elevate

We forecast that growth will come in above .0% in all three Caucasus countries in 00 andexpect growth to remain robust over our five-year forecast period, coming in above 4.8% in 2012.We are more cautious regarding the political outlook for the region, and believe that political risksare likely to remain elevated in the short-to-medium term. In particular, we expect domestic politicaltensions to be the main risk for Armenia with the opposition’s discontent over the Februarypresidential election expected to remain high. Our main concern for Georgia is elevated tensionswith Russia over the separatist regions of Abkhazia and South Ossetia. That said, we believe thatthe outbreak of full-scale war between Georgia and Russia is highly unlikely.

Armenian President Serzihik Sarksyan briefly met with his Turkish counterpart Abdullah Gul onJuly 5 in Kazakhstan, during celebrations to mark the 10th anniversary of the country’s capitalcity Astana. This is the first time that Gul and Sarksyan have met since the latter’s election to thepresidency in February. Considering that the two countries still maintain no official diplomatic contact(due to the disagreement over the killing of ethnic Armenians in Turkey during the first worldwar) the move is a significant symbolic step for improved relations. While the meeting led to noconcrete changes in the foreign policy of either country, it indicates that the potential for a furtherthawing of relations lies ahead.

Our long-term economic risk rating for Georgia stands at 47.9, indicating a moderate degree ofeconomic stability for the country. However, Georgia lags behind its regional neighbours in ourlong-term risk ratings with Armenia and Azerbaijan scoring 52.8 and 56.0, respectively. In addition,Georgia is outperformed by other former CIS states Belarus, Uzbekistan, Kazakhstan and Ukrainewho score 55.0, 57.7, 61.7 and 60.2, respectively. However, Georgia tops Tajikistan and Turkmenistanwhere the rating is 44.6 and 46.4, respectively. We anticipate that Georgia’s macroeconomicoutlook is likely to improve over our five-year forecast period, which will boost our ratings - andshould help to close the gap with the other Caucasus countries.

Azeri and Turkmen leaders met for the first time in 12 years on May 19, with both sides statingthat they wanted to improve relations. The meeting boosted hopes in the West, particularly theEU, for a new natural gas route for Central Asia that will bypass Russia. Currently the majority ofTurkmenistan’s gas travels to north Europe through Russia’s network of pipelines. In addition, AzeriPresident Ilham Aliyev and his Turkmen counterpart Gurbanguly Berdimuhamedow also discussedthe disputed oil fields in the Caspian Sea, along with other trade and diplomatic links between thetwo countries.

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