Ravan Maharramov, a qualified lawyer from Azerbaijan working at Withers LLP in London, discusses the current business landscape in Azerbaijan and the opportunities for UK firms in the market.Legal life in Azerbaijan
The strategic and geographic location of Azerbaijan, at the heart of major trade routes between Europe and Asia, has made the country a regional energy and infrastructure hub.
The past few years have been exceptionally good for the country’s economy. According to the World Bank, Azerbaijan had the fastest-growing economy in the world in 2005-2007 and despite recent slight downturn has continued to track positively.
The country was sheltered from the financial crisis largely due to implementation of world-class projects to export country’s hydrocarbons to the world markets, bringing rapidly growing profits on the one hand, and the implementation of reforms aimed at the effective control of the income and diversification of the economy on the other.
Oil is the backbone of the economy, just as it was more than a century ago.
(Azerbaijan’s first oil well was drilled in 1846, preceding America’s first commercial well by more than a decade). During the boom years of mid 2000-s, the country has built up considerable gold and foreign currency reserves, far exceeding country’s national debt.
There are 21 production-sharing agreements with various oil companies in place. Two parallel pipelines to transport Caspian oil and gas from Baku through Georgia to Turkey and the Mediterranean became operational in 2006. The oil pipeline alone is expected to generate as much as $160 billion in revenues for the country over the next 30 years.
In order to increase trade and capitalise on its strategic location, Azerbaijan conducts large infrastructure projects on a regional scale, providing multiple investment opportunities across the region.
Among recent major developments, I can highlight the agreement with Turkey on the construction of the Trans-Anatolian gas pipeline (TANAP), which is expected to start at the end of 2013 and carry gas to Turkey and Europe. The new route will diversify Azerbaijan’s export routes to the international markets and Europe’s access to energy imports.
The country’s non-energy economy is dominated by agriculture, telecommunications, construction, banking and real estate sectors.
Unlike many other ‘boom’ countries, Azerbaijan enjoys underlying economic, financial and political stability, making it an attractive prospect for businesses and investors.
The country ranked the highest among the Commonwealth of Independent States (CIS) countries at 46th place in the global competitiveness ranking released by the World Economic Forum in September 2012, climbing up by nine places from 2011.
The Government has publicly stated its commitment to diversifying the economy and attracting more foreign investment. As a result, the investment climate has been improving steadily with a number of legal and economic reforms undertaken in recent years.
Azerbaijan has conducted a number of regulatory reforms - among them the streamlining of the activities requiring licenses and permits, enactment of a modern Civil Code, establishment of centralized property and mortgage registries, the adoption of international financial reporting standards and the introduction of a single window system for company registration, immigration/work permit formalities and customs processing, together with advancements in e-filing. Access to credit was aided by an online platform allowing financial institutions to provide information to, and retrieve it from, the public credit registry.
A centralised service provision, State Agency for Public Service and Social Innovations (ASAN), has been established recently to enable one-stop shop for a number of legal services. The main purpose of ASAN is to ensure transparency, elimination of corruption, the use of modern technology in the delivery of government services, and formation of new ways of thinking. It unites most public services, including but not limited to: registration of civil acts, notary services, banking services, fines for administrative law offenses, insurance, registration of real estate transactions, temporary and permanent residence permits, legal assistance in connection with filing claims in courts and appeals. The list also includes the issue of permits to foreigners for the working activity in Azerbaijan.
A revision of Azerbaijan’s tax code lowered several tax rates, including the profit tax rate, and simplified the process of paying corporate income tax and value added tax.
There have been notable changes in insurance legislation with the law “on compulsory insurance” coming into force. The law is expected to increase the size of the insurance market as well as the stock of assets in the local capital market.
An important legal development has been strengthening investor protections by regulating the approval of related-party transactions and expanding remedies available against liable directors.
The UK is strongly positioned in Azerbaijan - more than half of all foreign investment in the country comes from Britain. British companies outnumber those of any other Western country and range from FTSE 100 companies, such as BP, Petrofac, AMEC, Rolls Royce and GlaxoSmithKline to small and medium enterprises. As a result the UK is held in high regard and Azerbaijanis are comfortable working with British businesses.
With significant UK presence, English law is often used as the basis for major transactions; therefore opportunities for English law firms are substantial. There is a lot of legal work going on in Azerbaijan that is done by local law firms in cooperation with English counterparts. In addition, top UK law firms consult and provide legal assistance to the governmental bodies in developing and implementing legal and regulatory frameworks across wide range of sectors.
The development of large-scale infrastructure and construction projects as well as legal, tax, regulatory and banking systems with links to international business community provides a strong basis for developing and enhancing links between lawyers in the UK and Azerbaijan.
It is relatively straightforward to set up a business in Azerbaijan. In most cases, a local presence will have to be established, although licensing and franchising are also popular.
It is essential to get to know the country and evaluate the risks as well as the opportunities.
Conduct proper research, establish who you are going to do business with and give them a chance to know you and your business.
Face-to-face relationships dominate business environment in Azerbaijan, therefore personal presence is very important. Be prepared to make frequent visits there as it can be key to success.
Learn more about the market and how to do business from expats - UK has the biggest expat community in Azerbaijan, so there is a considerable knowledge base.
The views expressed above are those of Ravan Maharramov and do not reflect and may not be attributed to the Law Society of England and Wales.
For more information on the Law Society’s work in Central Asia contact Donna Evans