Business Monitor International


Caucasus Business Forecast Report

Published 26 February 2014

  • 59 pages
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  • Includes 3 free updated quarterly reports
 
$1,195.00
Caucasus Business Forecast Report

Core Views

  • The Armenian economy is set for a short-term boost as a result of the country's accession to the customs union of Russia, Belarus and Kazakhstan, which is expected in H214. This will open up the Armenian economy to increased foreign investment, as well as bolster export levels. However, in the longer term we believe that the pivot away from deeper EU integration will hinder greater levels of FDI, as Armenia will not face the same pressures to reform institutions or challenge monopolies as would be the case if the country were seeking EU member status.

  • An increase in production at the ACG oil field will boost Azerbaijani economic activity in 2014 and 2015, before production peaks in 2016. Following this, the Trans-Adriatic Pipeline, which will supply gas through to Western Europe, will provide a notable boost to real GDP growth. In addition, despite an increase in the number of skirmishes on the border of the disputed Armenian-occupied Nagorno-Karabakh region in early 2014 we do not expect an escalation to widespread armed hostilities. Azerbaijan has much to lose and little to gain in economic terms from a renewed conflict with Armenia, with any outbreak of violence likely to dissuade further FDI.

  • The Georgian economy is set to continue to reap the benefits of the relaxation of trade restrictions with Russia, although the country's drive towards deeper European Union integration could halt this trade renaissance in its tracks. Georgia is set to sign an Association Agreement with the EU in August at the earliest, taking the country a step further down the path towards EU member status. However, this could spur Moscow into re-imposing the trade restrictions in an attempt to halt a country that it sees as part of its historical economic and political sphere of influence pivoting towards Russia.

Major Forecast Changes

  • We have revised up our forecast for Azerbaijani real GDP growth in 2014 and 2015, from 5.5% and 4.6% to 5.6% and 5.7%...

Table of Contents

Core Views
11
Major Forecast Changes
11
Key Risks To Outlook
11
Chapter 1
13
Armenia Domestic Politics
13
Customs Union Accession Masks Long-Term Concerns
13
TABLE: ARMENIA - Political Overview
13
Long-Term Political Outlook
14
Mitigation Of Regional Tensions Key To Stability
14
Chapter 1
19
Armenia Economic Activity
19
Customs Union To Provide Short-Term Boost
19
TABLE: ARMENIA - ECONOMIC ACTIVITY
19
Chapter 1
23
The Armenian Economy To 2023
21
Convergence To Stall
21
TABLE: ARMENIA Long-Term Macroeconomic Forecasts
21
Chapter 1
23
Business Environment Outlook
23
Institutions
23
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
23
TABLE: BMI LEGAL FRAMEWORK RATING
24
TABLE: LABOUR FORCE QUALITY
25
Infrastructure
26
TABLE: EMERGING EUROPE - ANNUAL FDI INFLOWS
26
TABLE: TRADE AND INVESTMENT RATINGS
27
Market Orientation
28
TABLE: TOP EXPORT DESTINATIONS
28
Operational Risk
29
Chapter 2
31
Azerbaijan Domestic Politics
31
Threat To Investment To Subdue Border Tensions
31
The escalation in violence on the border of the disputed Nagorno-Karabakh region is unlikely to spur a major conflict between
The escalation in violence on the border of the disputed Nagorno-Karabakh region is unlikely to spur a major conflict between
Azerbaijan and Armenia
Long-Term Political Outlook
32
Everything Hinges On Nagorno-Karabakh
32
Attempts to win back the Nagorno-Karabakh enclave will remain the defining issue of Azerbaijani foreign and domestic policy through
Attempts to win back the Nagorno-Karabakh enclave will remain the defining issue of Azerbaijani foreign and domestic policy through
the medium term
No quick resolution is likely and, therefore, heightened tensions with Armenia have the potential to result in further
small-scale armed clashes, with escalation not ruled out
This will continue to weigh heavily on Azerbaijan-s long-term risk profile, which
will deter investment despite progress on other fronts
TABLE: AZerbaijan - Political Overview
32
Chapter 2
37
Azerbaijan Economic Activity
37
Oil Production Key Until TAP Constructed
37
Increased production at the ACG oil field will bolster Azerbaijani economic activity in 2014 and 2015, while the Trans-Adriatic Pipeline
Increased production at the ACG oil field will bolster Azerbaijani economic activity in 2014 and 2015, while the Trans-Adriatic Pipeline
will ensure substantial gas revenues post-2019
However, this reliance on hydrocarbons leaves Azerbaijan exposed to fluctuations in
global commodity prices, and will hinder government efforts to diversify the economy
TABLE: AZERBAIJAN - ECONOMIC ACTIVITY
37
Chapter 2
41
The Azeri Economy To 2023
41
Trend Growth Bolstered During 2018-2023
41
Over our 10-year forecast period to 202 3, we believe Azerbaijan-s economy will remain on a positive trajectory
Undoubtedly, energy
exports will continue to be the key driver underpinning growth
TABLE: Azerbaijan - Long-Term Macroeconomic Forecasts
41
Chapter 3
43
Georgia Domestic Politics
43
Georgian-Russian Rapprochement Under Threat
43
While political and economic relations between Georgia and Russia have undoubtedly improved over the past 18 months, Tbilisi-s
While political and economic relations between Georgia and Russia have undoubtedly improved over the past 18 months, Tbilisi-s
accelerating drive towards EU accession is likely to slow any reconciliation attempts
This will pose risks to Georgian economic activity,
with the potential for the recent loosening of bilateral trade restrictions to be quickly reversed
Long-Term Political Outlook
44
Pro-Western Path To Continue
44
We expect tensions between Georgia and Russia to continue to subside over the next 10 years as the Georgian Dream coalition attempt to
We expect tensions between Georgia and Russia to continue to subside over the next 10 years as the Georgian Dream coalition attempt to
improve Russo-Georgian relations, but highlight that the potential for social unrest in border areas will remain pronounced
TABLE: Georgia - Political Overview
45
Chapter 3
49
Georgia Economic Activity
49
Outlook Improving On Russian Trade Renaissance
49
An increase in Georgian-Russian trade will bolster real GDP growth in Georgia in 2014 and 2015, with a trade rapprochement with what
An increase in Georgian-Russian trade will bolster real GDP growth in Georgia in 2014 and 2015, with a trade rapprochement with what
was once Georgia-s largest trading partner reducing net exports- drag on growth
TABLE: GEORGIA - ECONOMIC ACTIVITY
49
Chapter 3
53
The Georgian Economy To 2023
53
Foreign Investment Will Support Growth
53
Over our 10-year forecast period, we project Georgian growth to remain relatively robust, averaging 5
Georgia
will continue to rely heavily on foreign direct investment as a key driver of growth over the long run, which will be enhanced by continued
will continue to rely heavily on foreign direct investment as a key driver of growth over the long run, which will be enhanced by continued
economic and structural reforms
TABLE: GEORGIA Long-Term Macroeconomic Forecasts
53
Chapter 4: BMI Global Assumptions
55
Global Outlook
55
Fairly Benign Prognosis
55
Table: Global Assumptions
55
Table: Developed States, Real GDP GrowtH, %
56
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS
Table: Emerging Markets, Real GDP Growth, %
57

The Caucasus Business Forecast Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Armenia, Azerbaijan and Georgia and is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of the Caucasus' economic, political and financial prospects through end-2017, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of the Caucasus' economic and industry growth through end-2017.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the business environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Caucasus' country risks against regional peers using BMI's country comparative Risk Ratings system.
  • Evaluate external threats to doing business in the Caucasus, including currency volatility, the commodity price boom and protectionist policies.

The Caucasus Business Forecast Report by Business Monitor International (BMI) includes three major sections: Economic Outlook, Political Outlook and Business Environment.

Economic Outlook:

How will the Caucasian economic policy-making and performance impact on corporate profitability over 2013-2017?

BMI provides our fully independent 5-year forecasts for the Caucasus through end-2017 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Caucasus Business Forecast Report features BMI's forecasts with supporting analysis for 2013 through to end-2017, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Ratings system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector exposure).
  • Global Assumptions - forecasts for each year to end-2017 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for the Caucasus and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on the Caucasus, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in the Caucasus over the next 5-years?

BMI's Caucasus country Risk Ratings evaluate the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Caucasian Market - Political Strengths, Weaknesses, Opportunities and Threats facing the Caucasus.
  • Political Stability and Risk Assessment - BMI's Risk Ratings assess explicit short- and long-term risks to political stability; latest ratings, rankings and trends for the Caucasus' risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.

Key Benefits

  • Benchmark Caucasus' risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Business Environment

Business Environment Risk Ratings with SWOT Analysis - Business environment Risk Ratings for the Caucasus, benchmarked against ratings for regional neighbours.

Country Competitiveness - Competitiveness of Caucasus' business operating environment in supporting corporate growth and profitability, compared with regional neighbours.

Business Environment Contents

  • Domestic Environment - Transparency, cronyism and corruption; labour market flexibility; corporate tax burden; interest rate levels; sophistication of banking sector and stock market; levels of business confidence; infrastructure and IT.
  • Foreign Direct Investment - Analysis of foreign investment regime; foreign ownership laws; attractiveness of business environment to foreign investors.
  • Foreign Trade - Analysis of trading environment, government trade policy, liberalisation measures, tariffs and membership of trade areas.

Key Benefits

  • Assess your company's evolving exposure to country specific operational and business risks, using BMI's in-depth analysis of the legal and regulatory business environment.
  • Understand your market's comparative strengths and weaknesses in the key areas of commercial infrastructure and business institutions, using BMI's proprietary global Business Environment Risk Ratings.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express