Price Rises Hit Azerbaijan

Thursday, 8 January, 2004

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Gulnaz Gulieva

Azerbaijani consumers have woken up to a New Year hangover with increased worries about the rising price of bread, and new tax rules which are already making many imported household items more costly.

There are suspicions that these deeply unpopular moves were held back until after October’s presidential election which brought Ilham Aliev to power. The price of flour went up officially last April, but the effects are only beginning to be felt now.

The immediate impact has been on consumer goods. As of January 1, Azerbaijani customs officers are levying value-added tax, VAT, on 21 categories of imported items. The government took the measure as part of its commitments under a three-year programme supported by the International Monetary Fund, IMF, to reduce poverty and promote economic growth.

The new goods liable to VAT include farm feed, chemicals, computers and components, heaters and many more. All these products were earlier exempt from this tax. With this extra income stream, customs stands a better chance of fulfilling its ambitious 2004 revenue targets, which have been upped by 20 US million dollars to around 224 million dollars this year from 2003.

Prices have already gone up in household and office equipment shops, and the increase may climb to 20 or 25 per cent for electronic goods.

Analysts fear that now VAT is being charged on farm feed, price rises for basic foodstuffs such as meat, poultry, eggs, and dairy products cannot be far behind. “The decision came out of the blue,” complained Rahman Gulmamedov, executive manager of the Azertoyug association for poultry farms. “Between 70 and 80 per cent of poultry prices are feed costs. If feeds are taxed, retail prices will inevitably go up for poultry and eggs.”

Ziya Samedzade, chairman of the Azerbaijani Economists’ Union, said, “Our government always does what international institutions tell it. Most recently, it has cancelled tax breaks in order to qualify for a 10 million dollar loan, but these changes can do 100 million dollars worth of damage to the economy in the long run.”

To make matters worse, bread prices have embarked on a slow upward crawl.

In April 2003, the Economic Development Ministry announced a 40 per cent price increase for flour, to between 1,200 and 1,300 manats (about 25 cents) a kilogram. Although it dropped slightly during the election campaign, the flour price has stayed roughly at that level.

Many bakers, instead of increasing their bread prices, ended up reducing the weight of their loaves in order to keep the price unchanged. Most of those who chose to raise prices have by now have increased them by 50 per cent, to the top limit of 1,000 manat (20 cents) per loaf allowed by the government.

The government has promised that bread prices will not go up anymore and senior deputy prime minister Abbas Abbasov told Azerbaijanis not to “surrender to media-induced panic”.

“Whatever happens, there will be no price hikes for bread. We have sufficient stockpiles of grain, but if need be, we will buy more grain and flour,” Abbasov announced on state television. He has recently returned from Kazakhstan, where he clinched a deal to import 300,000 tons of grain. A further 100,000 tons of grain and 100,000 tons of flour are due to arrive from Russia.

However, Sabir Veliev, who heads the crop farming section at the agriculture ministry, said the problem was not a shortage of grain. “Azerbaijan has sufficient stocks of grain, but certain monopolies are trying to create shortages,” he told IWPR.

Many officials and economists agree that the price rises were engineered by a number of companies controlling the market for bread. “I have a feeling that the price hikes for these products are not the result of a shortage,” Nazim Imanov, an independent economic analyst and formerly a leading opposition politician, told IWPR. “We see no signs of any serious shortage.”

Ingilab Ahmedov, director of the Economic Development Institute, agrees that the bread market has been taken over by “certain circles”, on which he declined to elaborate. At the same time, he said, “It was a terrible blunder when the government introduced import duties on grain early last year in a bid to protect local producers.”

Last year the Azerbaijani government tried to supply the domestic market on its own, but the attempt ended disastrously when crops were badly damaged by floods. As a result, Azerbaijan produced 150,000 fewer tons of grain than the year before.

Baku resident Elena Bagirova is worried about the sweeping price rises. “We were saving up to buy a new television set, but we cannot afford one any more. Prices have gone up by between 25 and 30 dollars,” she told IWPR. She said prices had actually begun to climb before the New Year’s holiday, but like most other Baku residents, she thought it was due to the regular holiday shopping rush typical for Azerbaijan.

“All prices have gone up five to 10 per cent,” Bagirova said. “This does not bode well for us. This is the worst price hike we’ve seen in years.”

Her family of three lives hand-to-mouth on a budget of around 150 dollars a month, which she said is just about enough to buy the bare necessities. “If bread prices go up, we will have to give up many other things,” she said.

Imanov agrees that price hikes affect living standards and arouse negative sentiment about the government. The Soviet-era view that the government should regulate the prices of bread and other staple foods still holds sway. “But as matters stand, the government can no longer control the marketplace the way it used to in Soviet times,” he said.

Gulnaz Gulieva is a reporter for Caspian Business News in Baku.