Heritage Foundation’s Improved Scores for Azerbaijan Should Be Impetus for Further Progress on Reform
The Heritage Foundation’s score for Azerbaijan in its new 2020 Index of Economic Freedom is up 3.9 points, ranking the country 44th world-wide with a score of 69.3. More importantly, since it has to compete among European countries for investment and other business engagement, Azerbaijan’s score is close to the region’s average of 69.8. The reasons Heritage states for Azerbaijan’s improved score: “big gains [in 2019] in scores for business freedom, investment freedom, and fiscal health.”
While good news for those developing and implementing Azerbaijan’s economic reform and diversification programs, Heritage is also clear in the report it released March 17 on the need for further action, especially in two areas. The first is improving government integrity — actions such as fighting corruption and cronyism, boosting transparency, and reducing a government’s role in a country’s economy.
The second area the Heritage Foundation flags as needing further action in Azerbaijan is judicial effectiveness. “Judicial effectiveness,” as the Foundation writes, “especially for developing countries, may be the area of economic freedom that is most important for laying the framework for economic growth, and in advanced economies, deviations from judicial effectiveness may be the first signs of serious problems that will lead to economic decline.”
Progress in these areas, coming on top of what Azerbaijan has achieved in recent years, could move Azerbaijan, as the Index’s authors note, from an economic freedom status of “moderately free” into the ranks of “mostly free” economies. This would raise Azerbaijan, number ranked this year 44 out of 180 economies, into a grouping that now includes Latvia (at 32), and Austria (at 29). It might be worth noting Japan is in this range, ranked at 30; the United States is placed at 17.
However, while such international rankings are useful, whether from the Heritage Foundation, the World Bank, or World Economic Forum, in flagging specific steps, in measuring and encouraging progress, and in helping governments as well as businesses and analysts see a country in the overall regional or global picture, they just tell parts of the story. They can be useful in helping attract international business, but foreign firms — like domestic companies — must also take a wide range of factors into account when making an investment or other business decisions. The experience companies have had to do business in a country, the reputation for on-time payments, how responsive both companies and governments are to emails or other inquiries, the effective protection of intellectual property rights, and the sanctity of contracts, along with the infrastructure and other systems, are all elements that make up an ecosystem that corporate boards and managers assess – and assess critically – when it comes to making decisions about doing business with a certain partner or in a particular country.
Thus, while such rankings are certainly important and useful, governments interested in attracting investment, in supporting economic growth and prosperity, and in seeing new enterprises and jobs created must continually take a critical look at a broad range of indicators to see how they stack up and can more effectively compete.
The bottom line then for countries looking to improve their economies is to use these international business rankings as ways to note what needs reform as well as useful measures of progress made. At the same time, governments should not rest on improved rankings, but rather keep engaging with businesses and other stakeholders to identify and address issues in their countries in order to improve their business climates and overall prosperity in a changing, but still extremely competitive world.