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 | | GLOBAL WARMING? - the investment climate of Azerbaijan becomes a little sunnier |
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| By Fuad Alizadeh |
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Foreign investment capital moves through the world in much the same way as an Azeri river changes its course across its valley - as one channel becomes blocked, it looks for other places, other ways to reach its goal. With the SARS crisis in South East Asia earlier this year, and ongoing uncertainty in the Middle East and Russia, Azerbaijan is starting to look like a more attractive route for the flow of at least some of the estimated $30 to $50 billion of investment capital seeking projects annually.
Significant improvements to the investment climate have been made by the government here re-cently, and since 1996 about $9.6 billion dollars has flowed into this country. It is hoped that this will rise to $10 billion in the next three years. Currently, privatization has led to the growth of the private sector share of the GDP to 73%. Azerbaijan leads all other CIS countries by value of the foreign investment it has attracted due to its oil reserves, and the state has been leading the way here.
The Azeri government still continues to look for ways to encourage investment. President Aliyev met with local and foreign investors in April and May 2002 for discussions that led to a decrease in the number of activities requiring licenses from 240 to 30, and the term of licenses was extended from 2 to 5 years. The government also reduced the number of checks being made on entrepreneurs by different government bodies, and the number of taxes investors are required to pay from 15 to 8. Plans have also been prepared for the reconstruction of the water and gas sectors, and the Aztelecom company will be tendered for privatization in the near future.
New bills addressing 'Investment Activities' and 'The Free Trade Zone' will be worked out and presented to parliament soon. A Council of Entrepreneurs has also been established to work closely with the President's office, with the aim of improving the investment climate. The Council carries the responsibility for addressing problems that impede the development of the private sector. However, representatives of international financial institutions are quick to point out that the laws that have been passed concerning the development of business and investment in Azerbaijan are not at fault. The reason is the problems they are encountering result from the non-implementation of these measures by some Ministries and state bodies.
Further measures are needed, however, particularly with regard to the improvement of the judicial and legal systems. And implementation of all existing and future legislation must become a priority, in line with the recommendations of the diplomatic missions and international finance institutions based in Baku. It would be regrettable if Azerbaijan failed to get a share of the multibillion investment cake given its importance to the reconstruction of hundreds of economic ventures that are currently underfunded.
While foreign investment is important to these ventures, so is the ability to obtain credit from commercial banks operating in Azerbaijan. During the "Investment in Azerbaijan: Gates to the Newly Independent States" conference which took place in May of this year, agreements were signed to strengthen methods of financing small-scale business. According to these agreements, the International Financial Corporation will give credits to two Azerbaijani commercial banks - Rabitabank and Azerigasbank. During the ceremony marking the signing of the agreement, it was revealed that the total sum of credit to be donated by the IFC was $2.4 million, shared equally between the two banks. This sum is designated to finance small and medium entrepreneurship.
Unfortunately, Azeri banks are not noted for their efficiency. Peter Woyke, vice-president of the International Financial Corporation, joked about this at the investment conference. Given, he said, the poor financial condition of local entrepreneurs and the weakness of the commercial banks which makes them unable to grant long-term credit, he would do better to leave his post at the IFC and open his own bank for crediting local businessmen.
The field is currently being exploitating. There are 25 rigs in the exploitation fund, 10 of which annually produce about 8,000 tons of oil. Experts estimate that residual oil deposits are 7 million tons. According to the vice president of Shengli Ma Minge, the Chinese company is planning to invest $140 million in the rehabilitation of the field and increase the extraction to 200,000 tons per year.
Currently, Azeri banks usually give credit in US dollars for a maximum term of two years at 15-25%, which is very difficult for small scale businessmen to pay back in such a short time. In addition, for all credit, excepting micro-credits, guarantees are required which are about twice as much as the amount of the credit itself. While it is hoped that the development of a stock market by the heads of some stock societies will attract finance, it is ludicrous to expect foreign investors to buy into such stock societies, given that the bidding in the Exchange more resembles a school for brokers learning to buy and sell, than a serious financial trading organization.
In this regard, Kalyujniy called on Azerbaijan for solidarity with the positions of other Caspian states and companies. Azerbaijan, however, has already made its choice by launching the construction of the new pipeline to the Mediterranean Port of Ceyhan, Turkey.
However, despite these negative aspects of the situation, the bigger picture must be one of optimism. Azerbaijan was able to attract large scale investments into the oil sector, despite an initial high risk political situation, lack of infrastructure to support the industry within the country, and competition from more favorable situations in other countries. The government must use this successful experience to develop a more radical and attractive proposals for improving the investment climate in other sectors of the economy, to bring about a more balanced and healthier development of the country as a whole.
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