Devaluation Effect On Entrepreneurship

Author: Gular Abbasova

Edition: Entrepreneurship

The two sharp devaluations of the manat in Azerbaijan in 2015 had an impact on all aspects of the economy, especially the business sector. In the capital of Baku and also in all regions, entrepreneurial activity decreased significantly.


"Since the collapse of the Soviet Union, I was engaged in the sale of medicine. When I travelled to Russia I took gold with me and sold it there With that money, I bought the medicine. Over time, I did this more often."


In January of 2015, 1 manat was worth $US0.78. On December 21, 1 manat was worth $US 1.55.


Mehdi Isayev belongs to the ethnic Tsakhur group and lives in Zaqatala near the border with Georgia.  He has been selling gold for around 20 years. During Soviet times, he  worked in the zoo. After the collapse, as many others, Isayev started to look for any way to earn a living. After the medicine business, hestarted to bring gold and sell it in Zaqatala. Isayev says that nobody had gold shops at that time. He opened a shop that has been working for more than 15 years.


"In comparison to previous periods, now the trade has relatively decreased," he said. "There are many more sellers rather than buyers. The sales started to decline last year. So, if in the past, people bought a big gold band with a diamond 1000-1500 AZN,  (630-950 $ at 2016 rates) today they try to buy a smaller size for 500-700 AZN. (315-440$)  If previously people bought 18 karat gold, then today they prefer to buy 12 karat."




Isayev says that after the devaluations, interests toward buying gold sharply decreased. People now prefer to buy lower-weight  gold, and rural people mostly buy cheaper and more valued Russian gold rather than more fashionable Italian or white gold.


"My shop is small. We get all gold from the Baku shops. Most of the gold is coming from Turkey and Dubai. When compared with Baku, the prices of gold are lower in the regions."


Isayev says that sales change according to the seasons. In autumn, people buy more because it is the wedding season in Azerbaijan. In other seasons, people buy less. The biggest sales start in August. "Previously, the trade was better, but now it has weakened. When the dollar increased, the situation became poorer. "



Yelena Kitiashvili, who is ethnically Georgian and a resident of Gah on the Georgian border, has been involved in small-scale business for 5-6 years. She has a small market and also bakes bread. "I was working as an accountant for almost 33 years, then due to unemployment, I had to open my own small business. "


Kitiashvili says that her son serves in the military service along the disputed border with Armenia. Despite a good education, her daughter is still unemployed. Her husband gets a pension for disability and has to spend all of it on his treatment. Her only income is the shop and breadmaking . After the devaluation, the profit in the shop has decreased.


"Our customers are our neighbors. We hope that in the summer, the sales of bread will increase. In summer the sales are better than in winter.”


"The devaluation has reduced people's ability to buy, so this has had a negative impact on business."


Natig Jafarli is an economist and Executive Secretary of the Board of the Republic Alternative Movement, says that for the development of business, one of the main conditions is the availability of low-cost and long-term loans. The two serious devaluations dealt a substantial blow to the banking sector and it greatly reduced the giving of loans. Loans in manats weren't being issued, so entrepreneurs had serious troubles.


"The situation in the regions is worse," Jafarli said.  "There is not only the devaluations, but the amount of goods coming from Russia has decreased and it has affected the entrepreneurs; the turnover of trade has significantly declined."


According to Jafarli, the process of the gradual depreciation of the manat will continue and it will seriously affect the banking sector, trade, real estate and construction sector.


Jafarli said that economic reforms alone are not the proper way to solve problems. Problems can  be solved by serious structural and management reforms that need time and political will.



“The government takes some steps to overcome these difficulties. But for now it is not easy,” said Vahid Ahmadov, a member of the Parliament's Economic Policy, Industry and Entrepreneurship Committee. He says that declining oil revenues will remain a problem for entrepreneurs.


“In every country, the devaluation of a currency creates problems. In former Soviet countries, due to decreasing oil prices, the nations' currencies are devalued, and Azerbaijan is not an exception. Our national currency was devalued twice, almost 100% in 2015 (February and December). Sure, all this affected entrepreneurship, too. Because typically, an entrepreneur has a loan from the bank.”


Ahmadov states that it is very important now to make banks cooperate with entrepreneurs.


“For this reason the Chamber of Control of financial markets was created. This chamber currently has finished with its examination of banks and will make certain decisions. We experts consider that a banking system that works with entrepreneurs must be strong in order to develop business in Azerbaijan.”

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