Since the discovery of its oil and gas reserves, for the last 20 years, Azerbaijan has been one of the fastest growing economies in the world. It has a population of 9.5 million and a territory of 86.6 sq. km. The GDP per capita was $73.56bn in 2013 (source: World Bank).
The geographic location of Azerbaijan right between Europe and Asia and their trading routes, makes the country a regional energy and infrastructure hub attracting a range of businesses offering a range of services. Opportunities flowing from trade and energy cover nearly every sector from design to education.
In terms of doing business, the World Bank ranked Azerbaijan in its 2015 ‘Ease of Doing Business’ report at number 80. It also ranked Azerbaijan 12th place (out of 189 countries) in the category of ‘Starting a Business’.
Until February 2015, the country’s chances to showcase its growing economy and readiness to cooperate with Western democracies were considerably high and the way to get there seemed clear-cut:
- Azerbaijan has dedicated itself to move forward with economic diversification - the ‘Vision2020 Concept of Development’ programme highlights entrenched priorities to improve non-oil related markets by improving the IT, industry, agriculture, education and tourism sectors and developing a strong social security system and civil society.
- Azerbaijan is to become a key strategic player for Europe. The Southern Gas Corridor, a $45bn-project which consists of three sub-projects (SCP, TANAP, TAP), is currently the largest infrastructure project in the world. The Trans Adriatic Pipeline (TAP), running through Greece and Albania to Italy, is an important EU concept at the heart of the Community’s energy strategy. The Juncker Commission is also keen to create energy partnership with Turkey since it is to become a significant transit country with its Trans Anatolian Pipeline (TANAP) route.
- Azerbaijan has seen the organisation of major sports events as an innovative vision to promote the Azeri opportunities. Baku hosts the European Games in 2015, the Formula1 Grand Prix in 2016 and was chosen as a venue for Euro2020.
Devaluation of its currency and job losses as oil price slid, however, hit Azerbaijan hard and put the country to the test.
Up to two weeks ago, Azerbaijan managed the crisis and general expectations well. The Azeri Central Bank did not intervene in stabilisation of the currency and the impacts of Russian sanctions also seemed to be manageable. Azerbaijan has started more frequent discussions regarding its WTO accession and looked into other (than Russian) export opportunities in Europe.
On 22nd February, however, the Azerbaijani manat dropped significantly and unexpectedly overnight causing serious concerns regarding the sustainability of previous economic plans.
Despite all the concern, the drastic decline and weaker growth in trading partners, oil and gas exporting markets remain for a softer albeit strong 6 percent growth (source: EBRD).
Furthermore, at the Caspian Corridor Conference last week the UK Ambassador to Azerbaijan, H.E. Irfan Saddiq, reassured Europe that the country has enough reserves to maintain the current economic scale. Azerbaijan is dedicated to rely on more innovative forms of finance, the WTO, the EU and will look into debt fund management and other opportunities in the financial services sector in collaboration with the European Bank for Reconstruction and Development.
It is necessary to be aware that there will be some inflation as a natural consequence of recovery, though. Additionally, the question remains as to how long the recovery period will take but for now, Azerbaijan is prepared to go ahead with the planned projects and handle the difficulties the country is facing.
Mr Saddiq also highlighted that there are plenty of other and new opportunities for UK firms to share expertise. Azerbaijan is looking to modernise its transport system and has already engaged in talks with ‘Transport for London’. To develop an equity market and financial services sector, Baku Stock Exchange has also visited the London Stock Exchange on a number of occasions.
The Law Society offers you a few opportunities to get involved in the Central Asia region.
We will be assisting the Lord Mayor on his visit to Baku in May 2015. The programme will focus on strengthening cooperation between the two countries in banking, asset management, insurance, Public Private Partnership (PPP), maritime, business services as well as the involvement of the legal services sector in all of the relevant areas of economic cooperation. If you wish to hear more information about the business programme please contact The Mansion House.
Ahead of the Law Society’s Central Asia Trade Mission and International Marketplace 2015, we are recruiting law firms to participate in a legal market visit from Central Asia to London, from 30 June to 1 July 2015.
The visit will give law firms the unique opportunity to build and expand their network and understand how to do business in the UK. For more information, visit our website.