Azerbaijan’s Developing Economy and Investment opportunities
Azerbaijan is an economy that has completed its post-Soviet transition into a major oil based economy (with the completion of the Baku-Tbilisi-Ceyhan Pipeline), from one where the state played the major role. Azeri GDP grew 41.7% in the first quarter of 2007, possibly the highest of any nation worldwide. Such rates cannot be sustained, but despite reaching 26.4% in 2005 (second highest GDP growth in the world in 2005 only to Equatorial Guinea), and 2006 over 34.6% (world highest), in 2008 dropped to 10.8%, and dropped further to 9.3% in 2009. The real GDP growth rate for 2011 was expected at 3.7% but had dropped to .1%. Large oil reserves are a major contributor to the economy. The national currency, the Azerbaijani manat, was stable in 2000, depreciating 3.8% against the dollar. The budget deficit equaled 1.3% of GDP in 2000.
External Trade
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Azerbaijan has concluded 21 production-sharing agreements with various oil companies. An export pipeline that transports Caspian oil to the Mediterranean from Baku through Tbilisi, Georgia to Ceyhan, Turkey (the Baku-Tbilisi-Ceyhan Pipeline) became operational in 2006. The pipeline is expected to generate as much as $160 billion in revenues for the country over the next 30 years. The recent high price of oil is highly beneficial to Azerbaijan’s economy as the nation is in the midst of an oil boom. Eastern Caspian producers in Kazakhstan also have expressed interest in accessing this pipeline to transport a portion of their production. In March 2001, Azerbaijan concluded a gas agreement with Turkey, providing a future export market for Azerbaijan.
In 2002 the Azerbaijani merchant marine had 54 ships.
Overview
Through the Soviet period, Azerbaijan had always been more developed industrially than Armenia and Georgia, two neighboring Transcaucasia countries – but also less diversified, as a result of slow investment in non-oil sector. With a history of industrial development of more than 100 years, Azerbaijan proved to be a leading nation in Southern Caucasus throughout the turmoil of Soviet Union collapse in early 1990s until nowadays
Oil remains the most prominent product of Azerbaijan’s economy with cotton, natural gas and agriculture products contributing to its economic growth over the last five years. More than $60 billion was invested into Azerbaijan’s oil by major international oil companies in AIOC consortium operated by BP. Oil production under the first of these PSAs, with the Azerbaijan International Operating Company, began in November 1997 and now is about 500,000 b/d. People visit petroleum spas (or “oil spas”) to bathe in the local crude in Naftalan A leading caviar producer and exporter in the past, Azerbaijan’s fishing industry today is concentrated on the dwindling stocks of sturgeon and beluga in the Caspian Sea.
Azerbaijan shares all the problems of the former Soviet republics in making the transition from a command to a market economy, but its energy resources brighten its long-term prospects. Azerbaijan has begun making progress on economic reform, and old economic ties and structures are slowly being replaced. An obstacle to economic progress, including stepped up foreign investment, is the continuing conflict with Armenia over the Nagorno-Karabakh region. Trade with Russia and the other former Soviet republics is declining in importance while trade is building up with Turkey, Iran, UAE, and the countries of EU. Azerbaijan is also a member of the Economic Cooperation Organization (ECO). Long-term prospects will depend on world oil prices and the location of new pipelines in the region. In 2010, Azerbaijan entered into top eight biggest oil suppliers to EU countries with € 9.46 billion. In 2011, the amount of investment in Azerbaijan was $20 billion, a 61% increase from 2010. According to Minister of Economic Development of Azerbaijan, Shahin Mustafayev, in 2011, “$15.7 billion was invested in non-oil sector, while the rest – in oil sector.
Business Environment
In 2008, Azerbaijan was cited as the top reformer by the World Bank’s Doing Business report:
Azerbaijan led the world as the top reformer in 2007/08, with improvements on seven out of 10 indicators of regulatory reform. Azerbaijan started operating a one-stop shop in January 2008 that halved the time, cost, and number of procedures to start a business. Business registrations increased by 40% in the first 6 months. Azerbaijan also eliminated the minimum loan cutoff of $1,100, more than doubling the number of borrowers covered at the credit registry. Also, taxpayers can now file and pay their taxes online. Azerbaijan’s extensive reforms moved it far up the ranks, from 97 to 33 in the overall ease of doing business.
Investment Opportunities in Azerbaijan
Today Azerbaijan is one of the most attractive destinations for FDIs in the region. Since mid 90th it has doubled its economic potential, enabled and sustained macroeconomic stability and undertook a wide range of economic and regulatory reforms ensuring sustainable business and investment environment. Consequently, the World Bank Doing Business Report 2009 named Azerbaijan the world’s leading reformer of business regulations and recorded the biggest jump ever in the world ranking of ease of doing business (from 97th position to 33rd). Azerbaijan has made a significant step forward in human development and was recognised as high human development country by the UNDP Human Development Report 2010. Azerbaijanian economy is the 55th competitive economy in the world according to the Global Competitiveness Report 2011-2012 by World Economic Forum taking lead in CIS.
Azerbaijan is a country of wide investment opportunities and one of the most attractive destinations for foreign direct investments (FDI) in the region. In the many sectors of the industry and economy as well as in human resources Azerbaijan has great potential. Within last 15 years 96 bln USD were invested in its economy, of which more than a half by foreign investors. There are a few major positive factors behind its success in attracting FDI. Years of political stability and economic development together with the traditional Azerbaijani hospitality, as well as presence of abundant resources and favorable location on the crossroads of Eurasia with the best infrastructure in the region play important role for the decision of foreign business.
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