Luis Aldo Sánchez-Ortega

1. Azerbaijan Luis Aldo Sánchez-Ortega Consultant, Senior Private Sector Development Indicator Based Reform Unit

2. Doing Business measures 11 areas of business regulation affecting firms throughout their life cycle New

3. Europe and Central Asia (ECA) is well represented among the top 50 performers on the ease of doing business Source: Doing Business 2019. Top improver

4. Sub-Saharan Africa is the region that introduced the highest number of reforms in Doing Business 2019 and over time Total number and share of reforms recorded per region from Doing Business 2004 to Doing Business 2019 South Asia Europe & Central Asia 20% 17% East Asia & Pacific Middle East & North Africa OECD high-income 12% Middle East & North Africa East Asia & Pacific 10% South Asia Latin America & Caribbean 4% 12% OECD high-income Sub-Saharan Africa 26% Latin America & Caribbean Europe & Central Asia Sub-Saharan Africa Share of reforms recorded globally (%) Source: Doing Business database.

5. Europe and Central Asia (ECA) and Sub-Saharan Africa (SSA) once again implemented the most reforms in 2017/18 Europe & Central Asia • Doing Business has recorded 3,519 regulatory reforms making it easier to do business since 2004. • 83%of economies in Sub-Saharan Africa implemented reforms in 2017/18 (only 38% in 2004/05). • Developing economiesimplemented 82% of all regulatory reforms in 2017/18. OECD high-income 83% 2.3 East Asia & Pacific 54 47% 0.7 64% 1.7 Middle East & North Africa 23 South Asia 43 70% 2.2 63% 2.4 43 Sub-Saharan Africa 19 Latin America & Caribbean 83% 56% 107 0.8 2.2 25 Average number of reforms per economy Share of economies that reformed in a region % Source: Doing Business database. Number of reforms per region

6. Highlights in Europe and Central Asia in Doing Business 2019 Number of reforms and top improvers in ECA • Georgia is number 6 and Macedonia FYR is number 10in the global ranking. • Azerbaijanand Turkeyare within the 10 economies that improved the most across 3 or more areas measured by Doing Business in 2017/18. • The region performs best in the areas of Registering Property andProtecting Minority Investors. • Reforms in 2017/18 focused on improvements in the areas of Trading Across Borders and Paying Taxes, with 9 and 8 reforms respectively. • The region has the biggest opportunity for improvement in the area of Getting Electricity.

7. Europe and Central Asia actively reformed in Trading across Borders and Paying Taxes in 2017/18 • Azerbaijan, Belarus, Kosovo, Macedonia (FYR), Russian Federation, Serbia, Turkey • Albania, Armenia, Georgia, Kazakhstan, Kyrgyz Republic, Turkey, • Ukraine Armenia, Belarus, Georgia, Kazakhstan, Moldova, Turkey Armenia, Azerbaijan, Cyprus, Kyrgyz Republic, Ukraine, Uzbekistan Armenia, Azerbaijan, Russian Federation Azerbaijan, San Marino, Turkey Azerbaijan, Kyrgyz Republic, Turkey Azerbaijan, Bulgaria

8. Europe and Central Asia has made the biggest improvement in business regulation over time Average improvement in the ease of doing business score DB 2019 DB 2015-2018 DB 2010-2014 DB 2005-2009 Average global improvement since 2003/04: 13.5 Source: Doing Business database. Note: The measure is normalized to range from 0 to 100, with 100 representing the best regulatory performance. Because of changes over the years in methodology and in the economies and indicators included, the improvements are measured year on year using pairs of consecutive years with comparable data.

9. Some ECA economies have reformed more actively than others Average improvement in the ease of doing business score DB 2019 DB 2015-2018 DB 2010-2014 DB 2005-2009 Source: Doing Business database. Note: The measure is normalized to range from 0 to 100, with 100 representing the best regulatory performance. Because of changes over the years in methodology and in the economies and indicators included, the improvements are measured year on year using pairs of consecutive years with comparable data.

10. Doing Business in Azerbaijan – ease of doing business score Best regulatory performance Azerbaijan scored 78.64 points in the ease of doing business in 2017/18, giving it a ranking of 25 overall in Doing Business 2019. Source: Doing Business 2019

11. Doing Business in Azerbaijan – ranking Rankings on Doing Business topics – Azerbaijan (Scale: Rank 190 center, Rank 1 outer edge) Source: Doing Business 2019

12. Azerbaijan reformed several areas measured by Doing Business in 2017/18 (1/2) What did Azerbaijan do to improve its business environment in 2017/18? (I) • Getting Credit • Getting Electricity • Registering Property • Dealing with Construction Permits • Streamlined • construction permitting • process • Improved the reliability of • power supply and made the procedure • faster and less costly • Increased the transparency • of the land administration system • Introduced new secured • transactions and insolvency laws. Set up a modern collateral • registry and new credit bureau • Time to obtain a construction permit (days): • 2016/17: 196 • 2017/18:116 • Strength of legal rights index (0-12): • 2016/17:2 • 2017/18:8 • Quality of land administration index (0-30): • 2016/17:17 • 2017/18:17.5 • Cost (% of income per capita): • 2016/17: 171.8 • 2017/18: 140.4 Best regulatory performance

13. Azerbaijan reformed several areas measured by Doing Business in 2017/18 (2/2) What did Azerbaijan do to improve its business environment in 2017/18? (II) • Protecting Minority Investors • Paying Taxes • Trading Across Borders • Resolving Insolvency • Labor Market Regulation • Increased • shareholders’ rights and role in major • corporate decisions • Introduced e-invoicing and unified tax return for contributions. Enhanced online CIT filing • Streamlined e-customs procedures and implemented “green corridor” gating • system • Improved claw-back provisions applicable to voidable transactions • Changed regulations pertaining • to the notice period for redundancy • dismissals and severance payments • Time to import: Border compliance (hours): • 2016/17:30 • 2017/18:14 • Time to pay taxes (hours per year): • 2016/17:195 • 2017/18:159 • Strength of insolvency framework index (0-16): • 2016/17:13 • 2017/18:13.5 • Extent of shareholder rights index (0-10): • 2016/17:8 • 2017/18:9 Best regulatory performance

14. Azerbaijan is one of the 10 economies that improved the most globally in 2017/18 Source: Doing Business database. Note: Economies are selected on the basis of the number of reforms and ranked on how much their ease of doing business score improved. First, Doing Business selects the economies that implemented reforms making it easier to do business in three or more of the 10 areas included in this year’s aggregate ease of doing business score. Regulatory changes making it more difficult to do business are subtracted from the number of those making it easier. Second, Doing Business ranks these economies on the increase in their distance to frontier score from the previous year. The improvement in their score is calculated not by using the data published in 2017 but by using comparable data that capture data revisions and methodology changes. The choice of the most improved economies is determined by the largest improvements in the ease of doing business score among those with at least three reforms.

15. In most economies it takes between one week and one month to start a business New Zealand has fastest business start-up: ½ day • Source: Doing Business 2019. In Azerbaijan, business start-up takes 3.5 days

16. Reforms ultimately benefit local entrepreneurs – as illustrated through the examples below Starting a Business Paying Taxes Tajikistan 2006: 79 days 2019: 11 days Turkey 2006: 254 hours 2019: 170 hours Dealing with Construction Permits Registering Property Kyrgyz Republic 2006: 374 days 2019: 142 days Azerbaijan 2006: 59 days 2019: 5.5 days Source: Doing Business database.

17. Azerbaijan still has lots of room for improvement relative to best practices – especially in some indicators Global best practice Source: Doing Business 2019

18. THANK YOU!

19. Tentative initiatives to consider (1/4) • 1. Starting a Business • Allow users to register employees with the Ministry of Labor and Social Protection through a unified platform, preferably the existing One Stop Shop. • 2. Dealing with Construction Permits • Introduce a liability regime. It is important that the responsible party be held liable not only by contract but also by law for an adequate period. • Building owners should be protected in case a building has design and/or construction flaws that were unbeknownst to the construction authorities that issued a completion certificate. • Introduce legislation for parties to purchase latent defect liability insurance. • In the advent of a major structural flaw, the parties held liable should have the resources to cover the costs of any latent defects. Having insurance ensures that damages will be covered—and when parties know they are protected, this can encourage more construction • Centralize all technical conditions requests through a one stop shop or a single agency. • The onus should be shifted away from the customer – so he/she no longer needs to interact with multiple agencies to get all technical conditions (e.g. Fire Department, Ministry of Ecology, Baku City Sanitation, etc.) • Introduce risk-based approach to the inspection regime. • Low risk buildings, such as warehouses, typically do not require some of the inspections recorded for Azerbaijan (e.g. inspection from Ministry of Ecology or Labor Inspection). Area of priority for Azerbaijan based on DB indicator score

20. Tentative initiatives to consider (2/4) • 3. Getting Electricity • Introduced financial deterrent to limit power outages. • A good practice is to set a binding limit on the frequency/ duration of outages and then requiring utilities to pay compensation to customers if they exceed that limit. This creates accountability in the electricity sector and forces the utility to take customer service engagements. • Roll out GIS system to do away with the site inspection. • Eliminate the notification on the commencement of the external works. The rationale for this procedure is unclear. Moreover, such a procedure is not encountered in most economies. • 4. Registering Property • For the mapping of land plots, transition to a fully digital system (currently maps are in a scanned format). • Introduce a specific and separate mechanism for customers to: • File complaints about a problem that occurs at Baku City Territorial Office (BCTO) • File complaints about a problem that occurs at the Real Estate Cadastre • Request coverage for losses incurred in a transaction based on erroneous information certified by the BCTO • 5. Getting Credit • Extend security rights to future or after-acquired assets - and extend them automatically to the products, proceeds and replacements of the original assets. • Allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description of collateral.

21. Tentative initiatives to consider (3/4) • 6. Protecting Minority Investors • Allow plaintiff to request categories of documents from the defendant without having to identify the specific documents. • Introduce legal time limit for profits to be distributed. • Introduce mechanism to resolve disagreements among company board members. • 7. Paying Taxes • Review tax auditing system and introduce risk based mechanism so as to lower audits in case a VAT refund is claimed. • 8. Trading across Borders • Review risk based inspection system. • Systems for establishing risk profiles reduce physical inspections without compromising on the potential risks of consignments. Investing in equipment also helps to expedite the processing of cargo. • Enhance private sector participation. • Greater competition among trade service providers can lead to lower fees and higher quality of service.  • Undertake time release study to identify where the bottle necks lie on border and documentary compliance. Area of priority for Azerbaijan based on DB indicator score

22. Tentative initiatives to consider (4/4) • 9. Enforcing Contracts • Set time standards for all different court events. • Regulate the maximum number of adjournments that can be granted. • Introduce electronic case management tools in place within the competent court for use by judges. • Allow for complaints to be filed electronically through a dedicated platform through the competent court. • Create a framework for alternative dispute resolution. • 10. Resolving Insolvency • Establish time limits for proceedings. • Long proceedings reduce creditors’ chances of recovering outstanding debt and can create unnecessary uncertainty for all parties involved • Establishing effective reorganization proceedings. • The highest recovery rates are recorded in economies where reorganization is the most common insolvency proceeding • Divide creditors into classes for the purposes of voting on the reorganization plan, and ensure that all creditors in the same class are treated equally. • Legally require that creditors give approval for the of a substantial assets of the debtor. Area of priority for Azerbaijan based on DB indicator score