Upper Reach: Azerbaijan Report

21 october 2010, 14:53

Upper Reach

Thursday, 21 October 2010

Key allies strengthen ties 

Britain is the largest single foreign investor in Azerbaijan, with more than 100 British companies operating in the country, and accounts for around 50 per cent of FDI in the oil and gas-rich republic

Azerbaijan regained its independence in 1991 – having briefly existed as an independent republic between 1918 and 1920 before becoming part of the Soviet Union – and formal diplomatic relations with the UK were established the following year. Since then, bilateral relations have expanded to cover a wide range of issues, from highlevel political and parliamentary contacts to growing trade and investment links, as well as strengthening cultural and humanitarian ties. 

On her first arrival in the capital Baku back in 1988, British Ambassador to Azerbaijan Dr Carolyn Browne says, “I remember being entranced by the city, which seems to be poised between East and West to reflect the sensibilities of both worlds. But also it has something uniquely of its own. I am reminded of the way that Istanbul manages to look to both East and West, while at the same time being uniquely itself – synthesising both parts of its character. The same is true here in Azerbaijan. It is, and always was, an international city.” 

The Ambassador adds, “I am conscious that as far as we Brits are concerned, it is indeed a city that reflects ties with the UK. British traders are now here in force. Indeed, the UK is the largest foreign direct investor of all countries. [The UK ex-pat community] is one of the largest expat business communities in Azerbaijan. Many come from Scotland because that is one of the world’s leading centres for offshore deep water oil and gas technology expertise.” 

The Caspian Sea represents one of the major oil and gas reserves worldwide. In addition, Azerbaijan also has substantial explored deposits of precious metals (including gold and silver), ferrous and non-ferrous metals, and various deposits of essential raw materials needed by the construction industry. 

Massive export revenues from the oil and gas sector have fuelled a boom in Azerbaijan and attracted the attention of the international investor community. According to Azpromo (Azerbaijani Export & Investment Promotion Foundation), a joint public-private initiative that serves as a bridge between investors, local producers and the government, Azerbaijan is the leading foreign direct investment (FDI) destination in the region. In the last decade the total FDI stock in Azerbaijan exceeded $25 billion. A fact that has not gone unnoticed by British businesses looking to tap into the region’s potential. 

Dr Browne says, “I was delighted that the Lord Major of the City of London visited Azerbaijan with a large trade delegation in mid-July [last year]. I was struck by the enthusiasm that the British businessmen accompanying him had for developing further the links that we had already made here. I think that was a very important visit, primarily helping Azerbaijan to develop its financial services sector, which is key for the development of the rest of the economy. But there are many opportunities elsewhere in the economy, for example, in construction and design, in the management of complex and large-scale projects, in agriculture, and I would particularly like to highlight IT and the general information and communication sphere. The development of this sector is the second priority of President Ilham Aliyev after the oil and gas sector.” 

In comparison with other CIS members, Azerbaijan’s economic performance in 2009 stands out. Real GDP growth last year of 9.3 per cent places the republic among the world’s fastest growing economies last year, despite being the slowest rate of real GDP expansion recorded by the country since 1999, and was the highest rate in the east European region. The hydrocarbons sector is the main driver of growth, but non-export sectors have also featured double-digit growth in recent years, spurred by growth in the construction, banking and real estate sectors. 

According to the Economist Intelligence Unit, factors contributing to Azerbaijan’s economic performance include the expansion of oil output; the operation of a large, timely discretionary policy, supported by transfers from the State Oil Fund of the Republic of Azerbaijan (Sofaz), using resources built up during the 2007-08 period of higher oil prices; and the early implementation of measures to bolster the financial sector – which was less prone to external risks than other countries because of its small scale and its relative lack of reliance on international borrowing. 

“This is a country which is greatly expanding and growing in all sorts of ways,” says Dr Browne. “This is the country which British firms should look at investing in for the medium and long term. This is the sort of market that repays time and attention invested in it. [British firms should] regard this as an emerging market with an expanding number of opportunities.” 

In March, a high-level trade and investment forum, Britain in Azerbaijan, brought together over 200 representatives of well-known British companies and business groups to discuss the growing links between the two nations. 

In an article entitled The History of Democracy published in the Londonbased Diplomat magazine last year, Azerbaijan’s Ambassador to the UK Fakhraddin Gurbanov contextualised the Azeri position on an international level. He stated: “A ceasefire with Armenia in 1994 brought greater stability to the region, and allowed Azerbaijan to focus on the long-awaited tasks of state-building and integration with the global community. In what later became known as the Contract of the Century, the government entered into business with leading multinational oil and gas companies, bringing in much-needed revenues.” 

The Ambassador also commented: “Economic reforms aimed at increasing the ease of doing business and attracting investment beyond the energy sector helped Azerbaijan rank first in the World Bank’s Doing Business 2009 report, in terms of improvement.” 

Full Report