An Upbeat Assessment for Azerbaijan Inward Investors
James Sharp, the UK’s ambassador in Baku, was amongst the speakers at a fascinating webinar this week aimed at giving British and international investors and companies a clearer sense of the risks and opportunities for starting or deepening involvement in Azerbaijan.
The online event, “Doing Business in Azerbaijan,” was hosted by British Expertise International, a London-based “business development network for UK-based companies exporting expertise in infrastructure, capacity building and international development services.” A particular focus was on helping companies analyze how the Ukraine war might affect the economic situation in Azerbaijan.
The meeting started by setting the geopolitical scene, speakers pointing out that Baku follows a canny diplomatic path maintaining a balanced relationship with Russia, its northern neighbour, while tending to be a “swing voter” in international votes rather than falling neatly into any particular alignment or grouping. Regarding Ukraine, Azerbaijan has tended to absent itself from possibly contentious votes rather than angering either Moscow or Washington in taking sides (though public opinion tends to favour Ukraine in the conflict, and Baku has offered Kyiv humanitarian aid). The country’s ability to take such a neutral course is due to a strong ability to resist Russian pressure. Unlike Kazakhstan, much of whose exports go via Novorossiysk, many of Azerbaijan’s petroleum exports use pipeline export routes that avoid Russia. Despite Lukoil having a stake in local oil and gas production, Russian inward investment into Azerbaijan is relatively minor compared to neighbouring Armenia, where significant parts of the economy are Russian-owned/controlled. Also, in contrast to the situation in several Central Asian countries, fewer Azerbaijanis depend on remittances from family members working in Russia. Sanctions on Russia have had a knock-on effect on migrant workers, and a plunge in such remittances has hit Tajikistan especially hard.
In contrast, the Ukraine war has, in some ways, proved an economic windfall for Azerbaijan, with spiking oil and gas prices boosting government coffers. It’s something of a win-win situation in that Azerbaijan is not only enjoying greater profits but is also being positively encouraged to increase production to make up for oil and gas shortfalls suffered by some European countries normally supplied by Russia.
Looking ahead, there could be some food security worries as the effects of global grain shortages start to bite, but the oil-gas windfall means that Baku will be in a financially strong position to deal with higher grain prices as that happens.
Meanwhile, 18 months after regaining its formerly occupied territories, Azerbaijan is galvanized with a strong national focus to rebuild countless shattered communities, starting with a vast series of infrastructure works. This is not just a real morale boost but also calls for a rapid need for investment and new ideas.
There is also an increasingly strong move to develop renewable energies, and there are hopes that Azerbaijan will develop enough of a regional ‘edge’ to become a Eurasian hub for green energy technologies. Other encouraging fields include gold production – now Azerbaijan’s second most valuable export (along with hazelnuts and tomatoes) and opportunities in healthcare management and education. The webinar speakers painted a picture of very rapid diversification, and the maturing of technocrat-led decision-making processes that increasingly make Azerbaijan an attractive place to do business.
While all of the above means a raft of opportunities, listeners were reminded that foreign companies generally need local partners to have any realistic hope of getting major contracts. This is because the nature of business throughout the Caspian Region tends to depend on slow trust-building between people and businesses. Help is available to some extent through the recently reformulated British Chamber of Commerce Azerbaijan (formerly the BBG), which has many years of experience helping businesses make effective local contacts.
The overall message was that anyone who might have balked at doing business in Azerbaijan a decade ago should take another look. Changes have been immense. Pre-2015, there was lots of red tape, a seriously overvalued currency and a widespread skills shortage. Since the devaluation, costs are realistic. Western-educated staff at the ministries are streamlining procedures, and moves towards a less centralized system appear to be working. Across many sectors, there’s an ever-developing pool of local talent - notably skills from HR to accountancy developed in the oil-support industries are moving into wider fields of the economy.
Overall, the webinar concluded, Azerbaijan presents an encouraging economic picture with increasing diversity, increasing interest in its oil and gas industry, and a growing realization of the need to work towards advanced technology, renewables and better education.
As one speaker put it, the country “has a history of honouring contracts and has the money to pay for it – if you have a good product, you should be able to do business.”