TBY talks to Roland Kobia, Head of Delegation of the European Union to the Republic of Azerbaijan and EU Ambassador, on Azerbaijan’s transition to a market economy, its importance as an energy exporter, and hopes for a solution to the Nagorno-Karabakh issue.
TBY The European Neighborhood and Partnership Action Plan was intended to promote Azerbaijan’s transition to a market economy. To what extent has progress been made in this area?
ROLAND KOBIA First and foremost, I wish to say that the 2006 Action Plan goes well beyond trade and commercial matters. It sets out the areas of cooperation and the benchmarks of success. It is a plan that tries to give a road map to Azerbaijan as to what the areas are we would like to work together on and what the benchmarks are to assess progress in this regard. In those terms, it touches upon political issues, including very sensitive ones such as Nagoro-Karabakh, progress on democratization, and fundamental freedoms besides trade and economic polices. In the economic sphere there has been a lot of progress. This country has seen an impressive evolution in only 20 years of independence. There is good macroeconomic stability and a stable currency. It ranked 38th regarding the favorable conditions for entrepreneurial activity in the World Bank and International Finance Corporation’s Doing Business 2010 report. There is inflation, but it is limited, and there are strong revenues from fossil fuels. There are areas in which we invite Azerbaijan to make more progress. This basically pertains to the liberalization of the economy and public finance management and in the transparency of public expenditures. There was a World Bank sponsored Public Finance and Expenditure Accountability (PEFA) assessment in 2008, and the rating of Azerbaijan in terms of public finance management was variable. Some areas were not too bad and other areas needed to be improved. We are working closely with the Ministry of Finance to set up budgetary support and transparency of public finances on controls and on external audits to ensure that the whole basket of public finances that this country enjoys is invested in the best ways for the country. We believe it is in the interest of Azerbaijan, with all of the hydrocarbon generated revenues, to ensure that not only the incoming flows of money are transparent—and this is the case because Azerbaijan qualified for the Extractive Industries Transparency Initiative (EITI) process—but also the outgoing flows. One important point in this regard is that revenues should now be used not just for physical infrastructure, but also to develop education and the overall human capital of the country. The country’s development will need qualified engineers, doctors, and teachers to make full use of the new infrastructure, hospitals, and schools. The service sector will be in need to be developed to follow the progress of the country. In a nutshell, I personally believe that the impressive progress Azerbaijan has made in the “hardware”, and which should be praised, should now be followed by the same investments in the “software”.
The EU Commissioner for Energy Günther Oettinger has called on Azerbaijan to take part in the Nabucco project “without delay”. How significant is Azerbaijan to the EU and its energy needs?
The EU has, for the time being, three main corridors of supplies of gas, i.e. Russia, Algeria, and Norway. We want to develop a fourth corridor, called the Southern Gas Corridor, and we have been working on this for a long time with Azerbaijan. It is clear that this is the key country for the development of this corridor for a number of reasons. The main one is that Azerbaijan is the first country that is able to supply new gas from the Caspian basin. The importance of this corridor is that it not only opens a new route, but it also brings new gas to European markets. Azerbaijan has committed itself for a number of years at the highest political level to actually make the Southern Corridor happen and to be the first supplier of gas coming from the Caspian basin. President Aliyev and President of the European Commission José Manuel Barroso signed a joint declaration in January 2011, which made it very clear that Azerbaijan’s commitment is not only to be the first supplier, but the enabler of the Southern Corridor. Azerbaijan wants to diversify its exports and reach new markets. Azerbaijan sells to Russia, Iran, Georgia, Turkey, and a little bit to Greece, but Azerbaijan wants to have a new stable, rules-based, predictable market and this market is the EU. Why would any producer deprive itself of the possibility to sell directly to a solvent market of half a billion consumers amongst the wealthiest in the world? Of course there are still some issues to be finalized as this is an ambitious project, but it is precisely its ambitious nature that will open up new possibilities and generate more revenues for Azerbaijan, notably through further collaboration between Azerbaijan and other countries in the region such as Turkmenistan. We appreciate these developments as they trigger a regional momentum. However, I think the political decision is extremely clear and companies are working very hard for the time being to turn this into a reality.
How has the EU provided support for the diversification of the local economy? What challenges does Azerbaijan face?
Azerbaijan’s economy relies between 70% and 80% on oil and gas revenues. This is too much for any economy in the world to be so dependent on one commodity; it is even dangerous for the country’s future. Azerbaijan is a small trading partner for the EU in terms of percentages, and we would like these to increase. Azerbaijan has a very positive commercial balance with the EU because it exports oil, but it doesn’t have the possibility to generate extra revenues because its economy is not diversified and it is not competitive enough in terms of both offer and standards. We have started giving Azerbaijan the possibility to export all of its products to the EU without any customs duties. It’s called a General Systems of Preferences Plus (GSP+). In concrete terms, it means that Azerbaijan can export over 6,000 products to the EU without any customs duties. This is a unilateral trading offer that we have granted to Azerbaijan. We are also offering Azerbaijan the chance to enter into discussions with us to negotiate a free trade area between Azerbaijan and the EU. This offer for a Deep and Comprehensive Free Trade Area (DCFTA) is on the table and is part of the Eastern Partnership. The problem is that Azerbaijan is not a member of the WTO, and while Azerbaijan is not a member of the WTO, it cannot negotiate a free trade agreement with the EU. So here we are, we’re offering our hand, but our partner is not able to seize the opportunity because its economy is too monopolized and not diversified enough.
What is your outlook for a liberalized visa system between the EU and Azerbaijan?
We know that Azerbaijan is very keen on this. Azerbaijan wishes to open itself up and to enable its population to travel abroad, to see for themselves what is happening elsewhere. This is a good political signal that Azerbaijan has resolutely engaged on the path to modernization. The ball is in the camp of the EU, and we’ve asked for a mandate of negotiation to start discussing visa facilitation. Of course, there are stipulations before such an agreement can be finalized, including readmission agreements, border management, and security issues. I very much hope that this is a gift I will be able to leave Azerbaijan before my term here ends. Visa facilitation is something genuine, it is not a dream. Ukraine and Moldova have done what was necessary to obtain it. Here, in the region, Georgia also has it and the negotiations only took a year and a half. If we start negotiations now, it means Azerbaijan could possibly have visa facilitation by the end
© The Business Year