Azerbaijan has shared all the problems that have faced former Soviet republics in making the transition from command to market economy, however, its significant energy resources have given it a much brighter long-term outlook.
Economy
Azerbaijan's recent economic performance has been impressive. The country has had the fastest growing economy in the world for a number of years now. Growth has exceeded ten per cent since 2000 and reached 24.7 per cent in 2007. The staggering GDP growth witnessed in the last five years has come as a result of increased oil and gas production, which increased by 61 per cent in 2007, and high oil prices.
Growth declined in 2008, however, it continued to be impressive at 10.8 per cent. The decline in global oil prices and the overall slowdown of the world economy will see the economy slow further in 2009. The Economist Intelligence Unit forecasts GDP growth of 2.5 per cent. Oil prices are expected to be at their weakest in early 2010 before recovering in the latter part of the year. Economic growth reflects the recovery.
Investment Climate
Azerbaijan's efforts to modernise and reform its economy has seen many outdated laws replaced with modern legislation that encourage foreign investment, protect intellectual property, permit bankruptcies and rationalise the government's revenue collection policies. The country's improvements in terms of doing business were reflected in its ranking of the World Bank's Doing Business 2009 Report. It ranked 33 out of 181 on ease of doing business, a substantial improvement on previous years’ rankings.
Corruption continues to be a serious deterrent for investors, particularly in the non oil sector. Laws that exist to combat corruption are not adequately enforced with corruption in the regulatory, tax, and dispute settlement systems most pervasive. The New Anti Corruption National Strategy which began in 2007 and will run until 2011 commits the government to undertake a number of important reforms. These reforms will take place in a wide range of areas including adopting a comprehensive antimoney laundering/counter terrorist financing law, increasing accountability in government purchasing, improvement in the operations of the anti-corruption commission, streamlining government licensing and regulation, and increasing transparency throughout government operations.
Opportunities
There are strong current and long-term prospects in the oil and gas industry, where the Azerbaijani government has sought to attract overseas investment. Opportunities also exist in financial services, consumer goods and retail, and infrastructure sectors.
Oil and Gas
Since the mid 1990’s the oil and gas sector has been the engine driving Azerbaijan’s economy forward. Through a series of Production Sharing Agreements (PSAs), Azerbaijan succeeded in attracting significant foreign direct investment from international oil companies. This investment has led to a rapid increase in production, enriching the country and creating opportunities for investors.
Azerbaijan is the beginning of an East-West energy corridor built on two major pipelines. The first, the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, stretches from Baku in Azerbaijan, through Tbilisi, Georgia, to a terminus at Ceyhan in Turkey. The second, the South Caucasus Gas Pipeline (SCP), roughly parallels the BTC project route. Significant oil revenues have amplified the State Oil Company’s (SOCAR) ambitions to become a world-class energy company. This may present more opportunities for a wide range of companies: from management consulting to engineering and project management.
UK Trading Relationship
In 2008, UK exports to Azerbaijan totalled just over £304 million. Imports were lower reaching £122 million over the same period.
Although exports levels are low, there is high UK investment in the country particularly from BP. Azerbaijan is an important energy partner for the UK.
KEY FACTS
Official Name: Republic of Azerbaijan
Capital: BakuArea: 86,600sq km
Population: 8.5m (UN, 2008)
Major languages: Azeri, Russian
GDP (current): US$31.25bn (World Bank, 2007)
GDP growth: 25.0% (World Bank, 2007)GNI per capita: US$2,640 (World Bank, 2007)
Inflation (consumer prices): 21.6% (2008 est.)
Labour force: 5.78m (2008 est.)
Unemployment: 0.8% (2008 est.)
Monetary unit: 1 manat = 100 qapik
Exports to UK: £122.22m (HMRC 2008)
Imports from UK: £304.01m (HMRC 2008)
Main Industries
Petroleum and natural gas, petroleum products, oilfield equipment, steel, iron ore, cement, chemicals, petrochemicals, textiles.
Main Exports
Oil and gas, machinery, cotton, foodstuffs.
Main Imports
Machinery and equipment, oil products, foodstuffs, metals, chemicals.
CONTACTS
UK Trade & Investment
Kingsgate House
66-74 Victoria Street
London SW1E 6SW
Tel: 020 7215 4741
Email: james.key@uktradeinvest.gov.uk
Web: www.uktradeinvest.gov.uk
British Embassy
45 Khagani Street
AZ1010
Tel: 00 99 412 975188
Email: matt.sutherland@fco.gov.uk
Web: www.ukinazerbaijan.fco.gov.uk/en
Embassy of the Republic of Azerbaijan
4 Kensington Court
London W8 5DL
Tel: 020 7938 3412
Email: london@mission.mfa.gov.az
Web: www.azembassy.org.uk
