Azerbaijan

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An open carpet bazaar on an old square in the capital of Azerbaijan

Azerbaijan, on the shores of the Caspian Sea at the very south-western tip of Europe, has enjoyed astonishing growth over the last five years, with an average GDP increase of around 10% annually, and GDP growth in 2005 expected to be as high as 18.5%. Much of this growth has been due to exploitation of the country’s substantial oil and gas reserves, with the aid of foreign investors. The hydrocarbon sector has helped pull the country out of the post-Soviet slump, and whilst it remains vital to Azerbaijan’s economy, the government is looking to encourage diversity in the marketplace by actively promoting the development of other sectors. At his latest meeting with the American Chamber of Commerce in Azerbaijan, President Ilham Aliyev welcomed the fact that co-operation between Azerbaijan and the US now goes far beyond the bounds of the oil and gas sector to cover other, no less important, fields of the country’s economy. The long-term challenge for the government is to ensure sustainable long-term growth and to reduce poverty across the country.

Oil and gas

Azerbaijan is believed to have some of the largest untapped oil and gas deposits in the world, accessible both on land and in the Caspian Sea. It currently produces some 477,000 bbls oil per day, with a new offshore field due to open in 2006 expected to produce up to 1 million bbls per day, to be exported via pipeline to the Turkish port of Ceyhan. Investment in extracting these resources has largely been responsible for Azerbaijan’s position within the top third of FDI destinations worldwide. Overall, foreign companies have invested some $60 billion in oil production in Azerbajian, and an FDI increase of 32% in 2004, bringing the total for the year to over $400 million, was due largely to oil and gas projects.

Other sectors

At present, most industry is connected with the oil and gas sector, including production of equipment for extraction. However, growth has begun to spill over into other areas. The construction industry has been going through a period of rapid expansion, with growth of more than 41.2% during 2004. Telecommunications are also particularly attractive for foreign investors. The infrastructure is to a large extent still based on the old Soviet system and is slowly being replaced. Fixed-line telephone coverage remains poor particularly outside the capital, Baku. Diversifying Azerbaijan’s economy as a means to protect against fluctuations in the global oil price is one of the government’s major objectives. It is also keen to support regional social and economic development, and it is likely that investment in any of these areas would be particularly welcome.

“Open door ”

Long-term foreign investment is seen as key to developing a robust private sector in Azerbaijan. Accordingly, there have been a string of legal and fiscal reforms over the last few years aimed specifically at attracting and retaining foreign interests to the country. A number of incentives for attracting FDI have been proposed, but as yet there are no concrete programmes in place. Delays in implementing these plans can be discouraging for outside investors. However, the chief concern for foreign investors is the high level of corruption in the country. The government has acknowledged the problem and, in an effort to counter it, brought in new anticorruption measures at the beginning of 2005. In addition, the introduction of new accounting standards derived from IAS (International Accounting Standards) should increase the transparency of business transactions. The standards were first introduced in 2004 and will be mandatory in 2008.

International relations

Azerbaijan is currently in negotiations over entry to the WTO. In addition, meetings were held in February 2006 over increased co-operation between Azerbaijan and the EU. “We hope [for] rapid completion of talks on the adoption of an Action Plan under the EU’s New Neighborhood Policy,” said EU Commissioner of External Relations Benita Ferrero-Waldner, after a meeting with Foreign Minister Elmar Mammadyarov. “Access to European markets will give new impetus to the country’s integration to European institutions.”

Establishing a company

In the last 10 years, a thriving private sector has developed, and now accounts for 74% of domestic output, with the government planning further privatisation in the future. Azerbaijan permits 100% ownership of an enterprise by a foreign country, and full repatriation of profits is possible, subject to a 10% repatriation tax.

As of January 2004, corporate tax rates have been set at 24%. VAT was cut from 28% to 18%. Labour costs remain very low, with the average wage in 2004 at $98 per month.

Facts in brief

Azerbaijan’s location is South- Western Asia, bordering the Caspian Sea, between Iran and Russia, with a small European portion north of the Caucasus range. Both the main area of the country and the Naxcivan exclave are landlocked

Its climate is dry, semi-arid steppe

Natural resources include petroleum, natural gas, iron ore, nonferrous metals, alumina

Agriculture products are cotton, grain, rice, grapes, fruit, vegetables, tea, tobacco; cattle, pigs, sheep, goats

Industries include petroleum and natural gas, petroleum products, oilfield equipment; steel, iron ore; cement; chemicals and petrochemicals; textiles

Azerbaijan is based on a civil law system

Diplomatic representation in the US — Chief of mission: Ambassador Hafiz Pashayev

Diplomatic representation from the US — Chief of mission: Ambassador Reno L Harnish III

Contact Information

American Chamber of
Commerce in Azerbaijan
ISR Plaza, 6th Floor
340 Nizami Street
Baku
Tel: +994 12 497 1333
E-mail: amcham@amchamaz.org
Website: www.amchamaz.org

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