An Interview with Stanley Escudero, President of AMCHAM and Director of Shield Bearer International L.L.C., former U.S. Ambassador to Azerbaijan (1997-2000)

AT: You were first in Azerbaijan as a U.S. Ambassador and then you decided to return here as a businessman. What made you make this decision come back?

S.E.: It was not immediately deliberate. I was ambassador here from 1997 to 2000, and it was my third time as ambassador. I had been a diplomat for 33 years. I was tired and I really wanted to retire, but I went home to Florida and I got bored. Well, two things really happened first. First my mother, who was almost 86 at the time, had a massive stroke and while she wasn't so badly off that she had to go into a nursing home, she did have to go into an assisted living facility and these things are not paid for by Medicare in the United States. They cost about $40,000 a year for a good one and on my pension from the government I couldn't afford to keep her in such a place. But her medical needs were such that I couldn't have her at home either. So I had to go back to work. In addition, I was inclined to go to work, because I lived in Florida on Daytona Beach, so I went home and I went fishing and laid on the beach and watched the girls in bathing suits, wishing I was forty years younger. And after a while though I realized I couldn't catch so many fish and I was never going to be 40 years younger, and if I were to be brutally honest about it, it wouldn't have mattered anyway so I started this little company. I hung out a shingle thinking I would make a little money to supplement my pension; giving speeches, writing articles, and very quickly I discovered that there was a lot of interest in Azerbaijan. I began attracting real clients, oil companies and other large international firms, and they began sending me back here. I was very enthusiastic about Azerbaijan anyways, as I was when I was ambassador, as a place which was a coming "El Dorado" of sorts; an opportunity for people with a certain amount of courage, patience and persistence to get down on the ground floor of what would be a paying proposition for any well chosen investment. So with that kind of idea in mind and building on the access of the contacts I still had having been an ambassador I enjoyed some early successes as a consultant. Than finally in the middle of 2001 I realized I was spending more time here in Azerbaijan than I was in the United States and several of my larger clients got together and said, "Look why don't you just move back to Baku? You like living in Baku, you like the Azerbaijani people, you fit in there well." So I said, "Well yes, I would be delighted to, but you know it costs a fortune to support an ex-pat abroad, especially a former ambassador in the manner in which God intended that he should be accustomed to." And they said, "Yes, well we know, but we will split the costs, so please just name a figure." So I made my first important mistake as a private sector negotiator. I thought back to what I was making as an ambassador and then I named a figure that I thought was outrageous and they accepted it right away. And then I thought I should have asked for more. I should have thought about this more. Then, having giving my word, I came back in August of 2001 and wife joined my in October here, and now my two sons are here. And although the consulting firm remains quite successful I have in affect but my money where my mouth is with my money and my whole future, because my family and I have seen a number of opportunities here for businesses apart from consulting and we have started a number of companies, made a number of efforts in a couple of areas. A couple of them have failed spectacularly, but some of them have succeeded or show promises of success and I like to think that the success that my family and I have enjoyed here in Azerbaijan is testimony to the accuracy of the line I have taken ever since I was ambassador in Azerbaijan, that it really is a good place to live and to do business, where one can succeed, provided that you are patient and persevere, and provided you know a little something about the area you in which you are operating, that is geographically, culturally, the area. And you are well informed.

AT: What are your current business endeavors here in Azerbaijan and in what other capacities do you work here?

S.E.: I have a consulting firm called Shield Bearer L.L.C., and of course I am the President the American Chamber Commerce (AMCHAM), but that is a non-paying job, that is something you do because you try to help the business community and the country. And I do see part of my mission back here as trying to help the country along the road to transition to the degree that I can. And apart from that in cooperation with others I have a national distributorship for Heineken Beers and I have a distributorship for a number of large spirits and liquor conglomerates for the import of their brands of liquor. I have company which provides digital satellite television. I have an interest in three bar and grille operations in the city. I have an interest in a company which is manufacturing perforated chargers for oil wells. And a variety of other dibs and dabs.

AT: In what other former Soviet countries have you worked and how does the business climate in Azerbaijan compare with the business climate in these other countries?

S.E.: I was ambassador from 92-95 in Tajikistan and 95-97 in Uzbekistan, and here from 1997-2002. Tajikistan, at the time I was ambassador there, was engulfed in Civil War. There was no foreign business activity, there couldn't have been, it was a very dangerous place. The people were at war with one another and in fact even before the fall of the former Soviet Union Tajikistan had been the poorest of the Soviet Republics, and so it had a great deal of basic, almost remedial work that was necessary in Tajikistan to even begin to create the conditions that would make it possible for a foreign investor to come in there with any hope of success or in some cases depending where you were looking survival. And so there is not a base for comparison.

In the case of Uzbekistan there should have been a marvelous base for comparison of a successful non-energy economy versus a successful energy-based economy because Uzbekistan is centrally located in Central Asia. It has the largest population, about 25 million, of any of the Central Asian republics. It's the most powerful militarily. It has the largest industrial base left over from Soviet days, some of it quite sophisticated. And it appeared for a time that they were going to use that, the very considerable amount of income they got from their cotton crop, plus their extracting resources for primarily gold and silver to develop their country quickly and successfully off and on an energy basis into the real powerhouse of Central Asia. Unfortunately, the leadership in Uzbekistan in 1996 made the decision that would preclude free currency convertibility. Once you do that basically you choke the life out of any foreign investment. When you think of it, for example you run a supermarket for foreigners, and there was one at that time, a "Tesco's" was there, a big Italian chain, and you bring in a wide range of food stuffs and you sell them. And you sell them of course in the case of Uzbekistan in Uzbek Sum. And then you need to take this Sum and convert it into dollars or euros or whatever in order to get some more stock and bring it in, but they won't let you do that.

Now I come to Azerbaijan. Well in Azerbaijan, they had a near collapse of the country in 1993, but fortunately for them there was Heydar Aliyev and he is a marvelous example of the "Great Man" theory, because when he emerged, or remerged from exile, and regained the reigns of power here in the country he very quickly inaugurated a series of steps which resurrected the nation and its economy and much of its physical territory from the risk of collapse and physical disintegration. Everything that he put together, plus the development program that he put together with IMF and the World Bank, all of which taken together established a very solid foundation for the start of economic stability and economic growth which the country has experienced due in part, but only in part, to oil and gas, because even now Azerbaijan is not a wealthy country in terms of its oil and gas production. It will begin to become quite wealthy during the coming years, but that is a different issue. But, if you consider that Azerbaijan is a nation in successful transition, so far anyways, to a more capitalist, free-market somewhat more transparent and investor friendly state, not that it doesn't still have problems, it has many, but far fewer than it had. And if you consider also that as its economic condition is improving so is its political condition. While the last elections were not free and fair it was far and away the most free and the most fair of any election that was held in the history of Azerbaijan, and as such, what it was a milestone for the development of the country, because what it established was a new ceiling, which then becomes a floor for Azerbaijan to exceed or to strive to exceed in the next election.

The long and the short of it is if you look at Azerbaijan and compare where it has gone in past several years and if you take a look at Tajikistan, recently how it is just beginning to emerge in a serious way from the civil war and it is still very dependent on drug transportation through its country for a lot of its money, and you take a look at Uzbekistan, even though some reforms had been there, even though currency is now convertible there, other types of restrictions have been placed on international trade that still make it very difficult there is just no comparison. This country has a bright, bright future, and it is moving towards that future in a methodical but consistent way, at a pace which society can accept without splitting at the seams.

AT: It is a fact that Azerbaijan's business sector is developing, but what work remains to be done?

S.E.: A lot. You understand I am a fan, but that said there is a wide range of things that could be done. For instance look at AMCHAM's "White Paper." In 2001 AMCHAM produced the "White Paper," which described the economy as the business community saw it and proposing certain reform measures that might have been necessary, and presented it to the late president, Heydar Aliyev. And he undertook a series of measures based on that paper. There were some things recommended that he did not do, but never mind, he studied, he paid attention to it. And this year we revised it and updated it, and resent it to Ilham Aliyev and he received it in exactly the same spirit that his father did, very enthusiastically, very appreciatively, in part because we made it very clear that we were pointing out problems in the business climate, but we were trying to do it in a constructive way, by suggesting steps to overcome these problems, everyone of which was consistent with the parameters of his own policies for development.

I guess the single most important step that the government could probably take in the very short term would be to repeal the decision they made which requires 22 percent of the salaries paid to foreigners operating in Azerbaijan be paid to the Social Protection Fund. The difficulty with this is several fold. First of all foreigners don't receive Azeri pensions, they are not here long enough to do so, and even if they were there is another law that denies pension payments to anyone besides Azeri citizens. But that aside, only foreigners who don't work under the protection of Profit Sharing Agreements (PSAs) would be required to pay this, because PSA's exempt them from taxes and things like that. There aren't very many relatively speaking, a smaller fraction of the total workers operate outside of PSAs. The number of foreigners that pay, and therefore the amount that they would pay and the benefit to the Social Protection Fund, is relatively small. Also Azerbaijan is the only country in the region now that has this requirement. That means that from the view of a foreign investor, or a foreign company wanting to locate and maintain ex-pats in Azerbaijan it has to factor this additional expense into its budget. It in of itself is not so great of a thing, but it is just one more thing that goes on the negative side, it is on the debit side of the ledger as it were and is just a mistake.

AT: AMCHAM is a valuable tool that can be used to support and foster business development in Azerbaijan. What are some of the projects and issues that AMCHAM is currently working on?

S.E.: We do a great number of things. First of all we provide networking and information channels for our membership. We represent about 155 members, and the companies which we represent come from 14 different countries including Azerbaijan. These companies have made about $25 billion of investment so far, which is about 80 percent of all the foreign investment that has taken place in Azerbaijan to date. We have lunches, balls, and opportunities for people to display their wares, and make presentations to the membership so that everyone is aware of what everyone else is doing. We provide information to our members via our website and electronically on a variety of issues that we cover. One thing that AMCHAM has just begun to do in this past year is send groups around to visit the larger cities in the country. In the past we focused on Baku, but there is a lot of activity going on outside of Baku. And what we are doing is getting statistics and information about economic activity and bringing it back and passing it along to the membership along with specific investment possibilities, and ideas of projects that companies already have on their way in which they are looking for investment or partnership or something. We work closely with the government to try to assist them in this transition process which I have been talking about, to make sure that they have the perspective of the business community when they make their decisions. Of course we are basically a business NGO, we haven't got any sort of authority, all we are doing is offering ideas and advice and we are grateful that the government receives it, but the decision-making process rests entirely on the government obviously, as does the responsibility of the decision's consequences. We also have a program now where we are reaching out to the new parliament, and we want to begin working very closely with the leaders of the parliament and the chairmen of those committees which are particularly responsible for the economy and the business sector so that what we could hope to do, if they permit us, is to function a little like lobbyists and special interests groups do in the United States, such that we could sit down and discuss with members of parliament the need for legislation to do a particular thing. And if they agree that such legislation is needed then we could help them in the drafting of it, so that the final product achieves what the government and the members of parliament want, but does it without any inadvertent consequences which would be damaging to the business community. We are looking for synergy here; we are not looking for confrontation of any kind.

AT: Many businessmen complain that they have difficulty conducting business in Azerbaijan because they confront corruption or monopolies. What has enabled you to succeed as a businessman in Azerbaijan?

S.E.: Well first of all I haven't always succeeded. Some of the things I have tried to do here have failed abjectly. For example one of those projects was an attempt to offer paintball as a competitive sport. But the costs of doing this are so significantly great that most people in Azerbaijan are not able to afford it. And secondly the demand for land is so great that we were not able to maintain fields. Every time that we found a place and were ready to set-up and play, then the owner would come along and build a multistory apartment building there. The point is that it was badly judged in terms of whether the country was ready for it or not, and so it failed. On another occasion I was working as a partner with a company which was marketing water purification equipment. There were several of us Americans working as partners there and we had a dispute amongst ourselves, the result of which was that the company failed. In neither of these cases did we encounter problems with monopolies or problems with the tax ministry. In the cases of our other businesses we find that as long as we do what we do openly and properly, and don't under invoice what we are importing or try to cheat, as long as we don't get really greedy with how much profit we want to make, but try to operate on an even keel, very transparently, we don't have problems. I won't say I haven't had any problems, but people have problems in the United States. I am sure that the fact that I was ambassador has helped me, but frankly it hasn't made that much difference.

AT: Are there any new sectors that you are considering investing in or that you see opportunities for other people to invest in?

S.E.: I am not considering any at the moment, but there are still a lot of great opportunities in this country. I think that Azerbaijan raises a very wide range of fruits and vegetables which if processing plants could be set up out in the countryside near the farms that produce them so that you don't lose the product during transportation it would be possible to do very nicely, especially with certain types of niche products, sun-dried tomatoes for example, walnuts, things that can be packed in plastic and don't require the import of jars or cans, which could be exported and marketed as health food, because they are organically grown and in the case of the walnuts grow in the high Caucasus above the pollution line.

Crawfish is another possibility. In the United States they are about three inches long, a real big one may be four inches long, but here in Azerbaijan they are about the size of a lobster, a good one is may be eight to 10 inches long. I think there would be a huge market for these things in the United States and also in Scandinavia.

Light manufacturing, particularly certain types of oil field related equipment, is another area. It's a small area that has really just exploded recently along with oil production and it will continue to do so for some time. There was a time when Azerbaijan manufactured 70 percent of all the oil equipment manufactured in the Soviet Union and while the factories which manufactured these things have deteriorated and the workers that made them were trained to make them to old Soviet standards they could very easily be retrained to manufacture to API standards. A combination of cheaper labor costs and cheaper transportation costs would give anything manufactured to standard a massive price advantage over imported equipment. I think that a small investment in something like this would pay off very well, and I think that Minister of Economic Development Heydar Babayev would welcome such a thing just based on my own discussions with him. He expressed that he would be very eager to see investment in this sector and negotiating issues that would be of interest to any investor, like if you are taking over a past entity defining what exactly the value of that entity is and what its past debts are. In fact one of the things we believe in AMCHAM is the need for an investment law which addresses these kinds of issues across the board for all foreign investments or for that matter for local investors, because right now every time you come in to make an investment you negotiate the terms of your investment separately. It would be very nice if there was an investment law which could tell you what you could expect.

AT: For Azerbaijan to develop as a whole what is more important economic development or democratic processes?

S.E.: I believe that the one will bring along the other. Certainly you can and should have both at the same time but in the greater scheme of things I believe that economic development will almost always precede the process of democratic development and will exert a pull on the politics, the democratic aspect of things. As larger and larger numbers of people get more and more money, they will become less interested in simply scraping by, finding food, clothing their families and staying warm in the winter, and they will begin to care about educating their children better and living somewhat more luxuriously, and so forth. But before very long they will also want to have a larger say in the governance of their country and what has to happen, and is happening in Azerbaijan, is that the government has to institute reforms at a pace which approximates the readiness of society to take on the responsibility that it would require as the nation democratizes. It is no good going too soon, as I said you could split your country apart at the seams. The government officials who have to manage a democratic society don't know how to do it, the people who have to operate within a democratic society don't know what their rights and responsibilities are, the journalists who report on and even to some degree guide and conduct oversight in a more democratic society have to understand that a free press is a responsible press. They have to stop printing articles for money or demanding money not to print certain types of articles and actually just call it like they see it. Policy-makers have to understand that once you get to a certain point the rule of law takes presence of over personal interest and all of this is happening, but as I said it is happening at a gradual pace which seems to be more or less the pace that ought to be followed here in order to equal the capacity of the society to accept change. Sometimes it seems absolutely glacial, or it even slips back a bit. If you could graph out the overall thing you would probably see a very uneven pace, but overall if you look at it there is a certain constant positive momentum I think, which needs to be encouraged, which foreign embassies and foreign NGO's and even the government. This is a generational process.