State Oil Fund of Azerbaijan Republic

Topics: Sovereign wealth fund, Strategic management, Baku Pages: 12 (3289 words) Published: November 16, 2012

Since the industrial production of the oil, Azerbaijan has been controlled by Tsarist Russia and Soviet Union for more than a century. For this reason, Azerbaijan had little experience in independently managing the oil industry and the revenues accumulated. This paper analyses different scenarios and management strategies of using oil money and advocates for the successful approach that would involve different tactics within the State Oil Fund of Azerbaijan Republic. Oil Fund, where oil money is accumulated, has a huge part of responsibility of administering the oil falls. The creation and implementation of a long-term strategy of management of oil and gas revenues is becoming an important issue in government’s agenda. This subject has received high attention due to various occasions. The high increase in oil and gas revenues after 2008, the possibility of a complete exhaustion of the current oil and gas wealth, the need for the preservation of macroeconomic stability, the effective use of the revenues for improving the well being of the current and future generation, stimulation of the development of the non-oil sector and ensuring the balanced development of the economy are some the main reasons why a long-term strategy of the Oil Fund is highly significant. This report recommends a short-medium-long term strategy on management of oil and gas revenues for the supervisory board and executive director of the State Oil Fund. The report covers the period of 2010-2030. It intends to establish the main principles for the use of oil and gas revenues as well as the expenditure and investment policy for that period. The recommended strategy ensures the accurate management of the revenues acquired from sale of natural gas and oil.

The main issues that have to be taken into account at the outset of strategy development are the external and internal factors to a certain public sector organisation. There are two basic views: the external side stresses the environmental factors as a key matter for success, on the other hand internal approach looks at internal strategic capabilities, resources and cultures as a substantial prerequisite for more powerful strategy.

1) SWOT & TOWS Analysis Framework

SWOT summarises the key issues of the public sector environment and the strategic capability of an organisation that generate strategic options and assess future courses of action in strategy development. The main aim of SWOT analysis is to identify the extent of positive and negative denotes in the strengths, weakness, opportunities and threats of the organisation, meanwhile it measures the impacts and changes taking place in the environment as well. This analysis is quite functional when it is used to explore the relationship between the environmental influences and strategic capabilities of an organisation compared with its competitors. Nevertheless it is more reasonable to use TOWS matrix methodology in developing strategies for the Oil Fund. Demonstrably, this is an effective way of combining a) internal strengths with external opportunities and threats, and b) internal weaknesses with external opportunities and threats to develop a strategy.

1) PESTLE Framework

The external environment is a source of survival, threats and opportunities for the both private and public sector organisations. For analysing and identifying the broad macro environment of organisations in terms of political, economic, social, technological and environmental (green) and legal factors PESTLE framework provides a comprehensive list of influences on the possible success or failure of particular strategies. It is important to note that, to identify the key drives for change among the complex list of these factors is more favourable for the managers to take a right action that allows an effective decision-making. In the complex and rapid...
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