Foreign Investment in Azerbaijan Increases

Economic News

22 Jul 2010
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Foreign Investment in Azerbaijan increased 17.1% in 2001 to $783m, according to an announcement by the State Statistics Committee in mid-January. The Azeri economy also received $506m in loans from abroad, with the US announcing on January 25th that it would increase its aid to $50m in 2002. Meanwhile President Haydar Aliyev in late January ruled out privatisation in the country's oil production sector, saying that as the main source of wealth for the country it should remain in state hands. All the same the ongoing lack of resolution in the Nagorno-Karabakh conflict is a cause for concern as it overshadows much of the political and economic climate in the country.

The State Statistics Committee said on January 18th that of all the capital investment in Azerbaijan in 2001 some 67.7% came from foreign companies, totalling $783.5m. Of the 5600bn Manats ($1.15bn) invested in the country's economy in 2001, 71% was invested in industry, mainly the construction of industrial facilities. In contrast, only 0.9% of that capital investment was spent on health care and social services.

The Azeri foreign trade balance improved from 2000 in 2001, with a surplus of around $883m from a total trade of $3.74bn according to the Committee in early February, with total imports increasing 22.1% and exports rising by 32.6%. Exports to non-CIS countries were up by 38.5% to just over $2bn, while imports from non-CIS countries totalled only $985m.

Official figures for loans to Azerbaijan in 2001 showed that of the $506m lent some 73% or $369m were in short-term loans and the remainder in long-term loans. According to the same figures the volume of these latter loans fell by 27.1% in December 2001 to reach $137m.

Although US foreign aid will fall in 2002- and military spending will rise in line with the campaign against terrorism- the US has promised to increase its aid to Azerbaijan in the coming year. Most of the new $50m sum, a rise of $10m on 2000 figures, will go to combat drug trafficking and assistance to small businesses. Naturally some will also go to military co-operation, although the US State Department's aid co-ordinator for the Europe and Eurasia did not give a breakdown in his comments in Baku on January 25th. In some of the few details given, he said that US officials would continue to advise the Azeri government on boosting economic reforms and creating jobs through the encouragement of small businesses.

The US is also interested in the progress of Azeri oil exports, most notably the proposed Baku-Ceyhan pipeline, that will transport Azeri oil to the Turkish Mediterranean coast via Georgia. This avoids both Russia and Iran so would be a natural option for US strategists. The US is involved in the pipeline through Unocal, which has a 7.75% stake in the project, and the US-Saudi company Delta Hess, which has 2.1%. The US giant ChevronTexaco is interested in buying a stake, as are the two largest Russian producers Lukoil and Yukos.

Following a closed shareholder meeting on January 23rd the State Oil Company of the Azerbaijan Republic (SOCAR), which currently has a 45% stake in the pipeline, confirmed that it is willing to sell a 30% share, retaining 15% for the Azeri state. In 2001 the Italian energy group ENI joined in, buying a 5% stake from SOCAR. A further sale would bring it well below the size of the second largest investor BP, which has a 25.5% stake and is leading the consortium that expects to complete the $2.7bn pipeline by 2005.

However, President Haydar Aliyev commented in an interview with the Russian ITAR-TASS news agency during his visit to Moscow on January 26th that most of the Azeri domestic oil industry would remain a state monopoly in the foreseeable future. The extraction of oil and the industrial processing of oil products would remain in state hands, while other areas, such as trade in oil products, would continue to be liberalised. His reasons for keeping tight state control over oil production was that it was the basis of Azerbaijan's economy, and should remain the wealth of the nation.

He did welcome the presence of foreign oil companies, in contract with the government to extract oil, and pointed out that his oil products liberalisation policy had lead to a number of private petrol stations and oil terminals. BP is currently the largest foreign presence in Azerbaijan, working mainly on the Shah-Deniz fields and the Azeri-Chirag-Guneshli deposits. According to figures from SOCAR the volume of oil transported through Azeri pipelines in 2001 increased just over 12% over the previous year to 19.5m tonnes.

Azerbaijan has however, faced problems in converting the optimism of the early 1990s into reality. Aside from the delay in creating the necessary infrastructure to transport the oil to the market and some disappointments with dry wells, investor confidence has not been as high as officials had hoped. The president retains tight control over the economy, although corruption is still a problem, and the lack of resolution in the Nagorno-Karabakh conflict worry potential foreign investors.

All the same there are some positive signs. In mid-February Aliyev rejected a proposal from the parliament that his presidential term, due to end in 2003, be extended by a further two years bringing it into line with the French model of a seven-year term. During the World Economic Forum in New York recently he also met with the co-chairmen of the Minsk Group, which is trying to forge a solution to the conflict, and urged them to accelerate the process. He reiterated that he believed that the group was the "optimal format for negotiations".

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