Azerbaijan had the largest share of shadow economy to GDP of the 28 countries included in a study on the shadow economy published by the Association of Chartered Certified Accountants (ACCA) in June. At an estimated 66.12% of GDP in 2017, Azerbaijan's shadow economy surpasses that of India (16.55% of GDP), China (10.17%), Bulgaria (29.85%), Ukraine (45.96%) and even Nigeria (47.7%). 

The study, titled "Emerging from the shadows", used a combination of futures research techniques like horizon scanning and scenario planning alongside a projection model to forecast the possible evolution of the shadow economy. Estimated at 23% of the global GDP in 2017, the shadow economy is expected to fall to 21% by 2025, according to the study. 

In Azerbaijan, however, it will remain a significant part of total economic output — 58.58% — even in 2025, according to the ACCA study. The consultancy cites corruption, a non-democratic governance system and dire economic growth prospects as the main reasons behind the large shadow economy in Azerbaijan. 

Based on International Monetary Fund (IMF) data, its estimates place the shadow economy in Azerbaijan at AZN40.22bn (€21bn) in 2016, compared to a GDP worth AZN67bn. Previous studies, such as Friedrich Schneider's 2012 paper "The Shadow Economy and Work in the Shadow: What Do We (Not) Know?" also ranked Azerbaijan as one of the countries with the highest percentage of shadow economy to GDP in the world, averaging 58% between 1999 and 2007.

However, the government statistics agency, Azstat, placed the figure at only 9.1% of GDP in 2015. 

According to the respondents to ACCA's surveys, the two most decisive factors that can lead to an increase in illegal economic activity are economic crises or recessions and high unemployment levels. Conversely, addressing these factors can help tackle the problem of the shadow economy.

The Azerbaijani economy has been in recession over the last year, with its economic output contracting by 3.8% in 2016 and expected to drop by a further 1.4% in 2017 due to low commodity prices. Meanwhile, the environment of impunity in the country, where evading taxes is relatively easy and even the large businesses that control swathes of the economy and are linked to the ruling elites are not registered with the tax registry, contributes to the problem. 

Officially, the unemployment rate in Azerbaijan hovers around 5% according to Azstat, although that figure is believed to also underestimate the extent of joblessness in the country. That is because, officially, only 1.5mn people, representing 15% of the total population and a third of the economically active population, are employed. More than half of those with official jobs, or 0.88mn people, work for the state. In reality, many Azerbaijanis are under- or unemployed. Furthermore, political elites control the largest sectors of the economy — telecommunications, banking, energy — and the extent to which their companies pay taxes has repeatedly been called into question. 

In March, an investigation by Radio Free Europe/ Radio Liberty (RFE/RL) revealed that Pasha Holding, a business empire owned by the family of the country's first lady, had withdrawn at least 10 of its companies from the tax registry. 19 other companies that RFE/RL was monitoring had also mysteriously disappeared from the mandatory registry. 

Meanwhile, with an estimated ratio of shadow economy to GDP of 45.96%, Ukraine ranks as having the third largest shadow economy among the countries in the study and the second in the Eastern Europe and Central Asia region. Not only that, but the relative size of its grey economy is expected to rise moderately to 46.1% by 2020, in stark contrast with the trend in shadow economies elsewhere. 

As with Azerbaijan, official figures put the size of the shadow economy as being much smaller than those presented by ACCA. The economic development and trade ministry said in July that the shadow economy had decreased to 34% of GDP in 2016 from 40% in 2015. It attributed the decline to the maintenance of relative macroeconomic stability in the country, renewal of economic growth, improvement of the business climate due to deregulation, and legalisation of the labour market due to a lower social security tax.

Russia, in the meantime, ranks fourth in the study with a shadow economy to GDP ratio estimated at 39.07% in 2017. Just like in the case of Ukraine, the relative size of the country's grey economy is expected to increase marginally to 39.19% by 2025. 

As of the end of 2016, Russia’s informal or grey economy employed 15.4mn people or 21.2% of all employed Russians, RBC daily reported in April, citing data from the Rosstat statistics agency. This was the largest extent of the sector recorded in the last 11 years. 

Meanwhile, according to the Centre for Socio-Political Monitoring RANHiGS, the average income amongst Russian households included RUB6,100 (€100) of “grey payments” derived from unpaid taxes in 2016, down from RUB7,400 rubles in 2013. Grey wages were down by about 15-17% in 2016, while the relative share of social benefits rose to record levels in the same period.

Shadow economy businesses have widespread acceptance in Russia: 64% of Russians are willing to work or buy from unregistered business vs 25% who consider it a crime, according to VTsIOM. The majority (56%) of Russians believe it is impossible to conduct honest business in Russia, while 41% think the opposite, compared with a 69%/21% split in 2007.

The main reasons respondents cited for setting up illegal businesses was low income (30%), greed (29%), high tax levels (29%) amongst other factors (where multiple choices were allowed in the survey).

Cash transactions remain popular in Russia as 80% of locals oppose the government's planned steps aimed at increasing non-cash payments, seeing it as infringement on their rights, a poll conducted by VTsIOM-Sputnik showed.

By and large, the respondents to ACCA's surveys agreed on the factors that boost and hamper the shadow economy. The former include ease of participation in the informal economy, economic recession, complex tax system, high tax burden, ease of avoiding taxes, poverty, high unemployment, corruption, a culture of impunity, low risk of detection and lack of economic dynamism. The latter encompass factors like improving the quality of the public sector, centralised tracking of transactions, increased investment, greater employment protection and the availability of social benefits. Respondents also appeared to be in agreement that governments bear the greatest responsibility to tackle the grey economy.

Internet and technology, however, appear to be the wild card in the efforts to control the shadow economy. On the one hand, respondents found that public IT systems can support the monitoring of tax payments by centralising information about companies. On the other hand, technologies like 3D printers, the increased levels of connectivity and of adoption of digital technology were believed to facilitate illegal economic activity.