Azerbaijan: Capital Market Development Plan
Over the past five years the Azerbaijani economy has been growing by double digits on average making the country more attractive for investments. However, in order to sustain the current high economic growth the country needs its non-oil sector to be strong and diversified, and to this end the Government of Azerbaijan announced securities market development as one of its priority development areas through its two national poverty reduction programs endorsed by the President of the Republic of Azerbaijan.
In March 2010, the State Committee for Securities (SCS) of Azerbaijan requested FIRST assistance in formulating a comprehensive capital market development strategy for the next 5 years in the form of a time-bound implementation action plan.
By late 2010, FIRST consultants prepared and presented a comprehensive capital market assessment report and Capital Market Development Strategic Plan.
The Capital Market Development Strategic Plan envisages development of the securities market through (i) improvement of capital market infrastructure and the underlying trading architecture; (ii) stimulating supply to enhance the range of capital market instruments and services; (iii) encouraging demand through corporate education and public awareness outreach; and (iv) strengthening the legal and regulatory framework, as well as improving the capacity of the regulatory body.
Azerbaijan’s Capital Market Development Strategic Plan was adopted by the SCS Supervisory Board, and on May 16, 2011, the President of the Republic of Azerbaijan endorsed the "State Program on the Development of the Securities Market of the Republic of Azerbaijan for 2011-2020".
Notably, the FIRST-funded project became a catalyst for the recently approved Capital Market Modernization Project (CMMP), which will support the activities proposed under the Capital Market Development Strategic Plan with the funding from the World Bank (US$M 12.0) and SECO (US$M 1.6). The objective of the CMMP project is to increase the use of equity and corporate debt as financing and/or investment instruments through the adoption of an effective capital markets regulatory framework and infrastructure.
Lessons learned
One of the key lessons from this project is that the strong client ownership is critical for the implementation of relatively small projects like the ones funded by FIRST. During the short life span of the project, it was critical that the designated SCS staff took direct part in the delivery of all project components and thus FIRST will continue to encourage such arrangements in the design of future projects.
As in the case of many other projects where the implementation of the outputs (in this case a market development strategy) is dependent on the availability of resources other than FIRST, it was important to know upfront that other donors were interested in providing help to the SCS with the implementation of the strategy. Otherwise, the project would be exposed to the risk of not bringing about the expected outcomes.