Enterprises Types in Azerbaijan

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Enterprises types in Azerbaijan
Since Azerbaijan’s economic reform started in 1990’s, the ownership structure of enterprises has undergone significant changes. Three ownership types will be analysed in this thesis: the privately managed farms under the Household Responsibility System (HRS), township and village enterprises (TVEs), and state owned enterprises (SOEs). These three types of ownership have all grown out of the planned economy. Today they dominate the Azerbaijan economy together with private enterprises and foreign investments. industrial production accounted for almost half of the official measured GDP, despite the fact that much of the workforce remained engaged in agriculture. The secondary industry was dominated by the large SOEs. In the reformera the boom in manufacturing has mainly come from the TVEs. The situation is starting to change so that private entrepreneurs and foreign investors either in wholly owned enterprises or in joint ventures now increasingly lead the ongoing boom in the economy. Economic reforms have not been carried out according to any comprehensive blueprint. One obvious reason why the three types of ownerships are interesting to analyse is their importance in Azerbaijan economy, especially as a dominant absorber of labour. There are three types of ownership of enterprises in Azerbaijan through the last 22 years. The three types of enterprises are private farming, under the Household Responsibility System, collective enterprises in the form of township and village enterprises, and finally state owned enterprises.

Cost of contracting has overall been reduced during the last 22 years, as markets in Azerbaijan have developed. In the beginning of the reform, it was necessary to have close ties to the authorities, to get access to the needed input. With the development of markets, close relations to the authorities are no longer so important, since it is now possible to rely on the markets for most inputs.

Cost of ownership has been dominated by high costs connected with the monitoring of managers and political interference by the authorities. It has been attempted to reduce the high monitoring cost through the implementation of various responsibility systems. In the beginning, these responsibility systems were often very simple to make them easy to administrate. The cost of political interference is still high for the enterprises that remain closely associated with the authorities. Cost of de facto private ownership has, at the same time, been reduced as legal protection of private property and corporate law have improved.

There were introduced responsibility systems to reduce the agency cost in all three types of enterprises early in the reform era. Especially the responsibility system in agriculture was successful, the success came, as the system was easy to implement and monitor. Each household received a bonus according to the amount of grain handed over to the production team. Actual household farming was introduced in the mid 1990s, the land remained collectively owned, but the individual households bought the needed input, and sold their output on the markets. As the contract period got longer, the problems with short-termism were reduced. The monitoring of managers in township and village enterprises and state owned enterprises proved more difficult. Continuous monitoring problems in the township and village enterprises, led to the introduction of a system easier to monitor. The individual enterprises were often rented out to the management, the rent was fixed and not influenced by the actually profit in the enterprise. This reduced the monitoring costs. However the contracts had a short duration and this lead to short-termism and defraud, such as managers removing assets, prior to handing back the enterprise to the local government. The contracts between the local government and management later became more advanced to...
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