Political relations

On 12 January 1992, Germany recognized Azerbaijan as an independent state. Bilateral relations began at that point, although initially, these relations were based largely on the economic component. Germany initially announced that it was a supporter of Azerbaijan's European integration. But the immutable condition for this is the restoration of the territorial integrity of Azerbaijan (Interview with the German ambassador to Azerbaijan, 10 January 2011). Germany strongly supports Azerbaijan in this issue and tries to assist the speedy resolution of this issue. Over the years of bilateral relations, Germany has repeatedly allocated funds as technical and material assistance to Azerbaijan. This assistance was directed at improving the public infrastructure in regions, bringing it to the European level, assisting the private sector and improving the banking system. Also, these funds were used to establish a loan fund with preferential terms. And in addition, the government of Germany created special educational projects for Azerbaijani students in Azerbaijan.

In Azerbaijan, the foundations of German political parties such as the Naumann Foundation (Liberal Democratic Party) and the Friedrich Ebert Stiftung (FES) (Social Democratic Party) are implementing educational programmes to promote liberal and social democratic ideas in society.

Economic relations

German investors began to show interest in Azerbaijan's economy from the first days of bilateral relations. However, initially there were interested only in agriculture and banking. But recently, in 2009, Germany's second largest energy company RWE entered the Nabucco consortium and obtained its share in the project. After that, it signed a memorandum with SOCAR for the exploration and development of the Nakhchivan maritime structure, obtaining a 50-per-cent stake. In the coming year, it is planned to sign a commercial agreement on this structure. In the long-term, RWE considers Nakhchivan to be one of the main resource bases for the Nabucco project, as geologists believe that this structure is rich in gas deposits.

Among other areas, it may be noted that German companies are particularly active in the banking sector. One of the major German banks and the most reliable of the world's 50 largest banks KfW is one of the initiators of the establishment of a microfinance bank in Azerbaijan. It currently owns 20 per cent of Access Bank (formerly Microfinance Bank). In addition, the capital of this bank is owned by another German financial group, LFS Financial Systems (3 per cent). And currently, the bank has a very strong influence on the sphere of lending to small businesses and agriculture and is one of the most reliable and best banks in Azerbaijan. Another active investor in the banking sector of Azerbaijan is the German Investment Corporation DEG, which owns 25 per cent of Bank Respublika and 8 per cent of Khalq Bank together with the Sparkassen International Development Trust, being one of the largest investors in the area of ??banking services in Azerbaijan.

Since the 1990s, agriculture has been in decline in Azerbaijan. And in order to revive it and restore the old customs of agriculture, many projects were implemented in which representatives of German business took an active part. Germany organized a loan fund, which allocated preferential loans to agriculture, actively developed leasing, etc. Numerous training sessions with experts from Germany, etc. were held. And finally in 2009, one of Germany's largest agricultural manufacturers RAO ??Global Group (which produces agricultural machinery and dairy products) signed a contract with the Azerbaijani government for 28 million euros, under which two plants - Agroservis and Agstafasud - will be built in Agstafa District, which will create 230 permanent jobs and produce 18 million liters of dairy products annually, fully satisfying domestic consumption. In addition, Azerbaijan has imported cattle from Germany for several years now, thus developing domestic meat production.

The German organization GIZ has been working in Azerbaijan for nearly 15 years, promoting the development of small and medium-sized businesses in the country. Since 2009, Azerbaijan's Ministry of Economic Development, with the support of Germany's Ministry of Finance, has sent a group of entrepreneurs for a 1.5-month study course at various German companies.

In addition to these areas, major German companies as Siemens, Daimler-Benz, Porsche, etc. also have offices in Azerbaijan.

Siemens is actively cooperating with Azerbaijan in the energy sector, specifically in the electricity sector. First, the company helped JSC Azerenergy to generate, transport and distribute electricity - reconstruct and build new power lines in the south of the country. Soon, the German company won a tender for the construction of a large thermal power plant in Sumqayit (35 km north of Baku). Construction costs amounted to € 350 million. We should add that the construction was financed by the consortium of the banks Bayerische Landesbank (Germany), Societe Generale (France) and BNP Paribas (France), which allocated a preferential loan of € 257 million. All three banks allocated equal shares for 15 years (the first three years are preferential) with a lending rate of Libor +0.55 per cent.


What can Azerbaijan learn from Germany? The common feature of our countries is that both countries live at the expense of exports. Germany has been one of the largest exporters in the world for several years in a row. And Azerbaijan also has a sufficiently large trade surplus. But here, the similarities end and differences begin. Germany is a major supplier of high technology products, automobiles, machine tools, factory machinery, pharmaceuticals and other types of finished products in the world. In this respect, Azerbaijan is only an importer and exports raw materials to the world market (97 per cent of exports is petroleum and petroleum products). In this respect, Azerbaijan can learn a lot from Germany. What characterizes the German economy? First, it is individual freedom. That is to say everyone has the right to open a business and develop it, and the state will be a guarantor. The state encourages competition at all levels, and as a result, there is a competitive economy. In the Azerbaijan economy, the environment is quite competitive at the level of small businesses, but is largely monopolized at the level of medium-sized and large businesses. The private sector is developing slowly, and the state has not yet found ways to expedite the process. In this regard, Germany's experience would be helpful. The second basis of the German economic model is social equality. The state guarantees equal rights and opportunities for everyone through social equality. The basis of Germany's social policy is a policy of trade-offs between groups with opposing interests. As a result, the working class in Germany has access to the management of enterprises and forms its social policies depending on the interests of its own enterprises. The third base is stimulating technological and organizational solutions. This is one of the most important features. The German government offers low taxes and many other benefits to new areas, innovative enterprises, etc. And in the end, due to this, Germany is well ahead of most of Western Europe even in terms of technology. Azerbaijan is quite backward in this respect, and there is almost no stimulation. Bills on new areas of production, etc. remain in parliament for too long, which eventually leads to failures in the economy. Also, we can learn from Germany to respond rapidly to novelties in the global economy. During the crisis, Germany was able to quickly adapt to the latest conditions and ultimately, preserved the stability of its economy.

Starting from 2011, the government of Azerbaijan started making more active efforts to combat corruption and partially liberalized export-import operations and the overall economy.
Today Azerbaijan's economy is not experiencing a lack of financial resources, because the country began to receive many billions of dollars of oil money in 2006 and this trend will continue for at least another 10 years. Therefore, the government does not care about the rational use of the state budget whose expenditure began to grow very rapidly in 2010. In this situation, management issues are the most vulnerable spots of the national economy. The study of forms of governance in both the public and private capital of Germany would help Azerbaijan to understand the essence of this sensitive problem more widely than we see it now.

We hope that our initiative will help Azerbaijan to examine Germany's experience and apply it to local conditions.