TBY talks to Adil A. Mammadov, President of AZPROMO, on Azerbaijan as an investment destination.
TBY How does Azerbaijan Export and Investment Promotion Foundation (AZPROMO) work to promote trade and investment in Azerbaijan?
ADIL A. MAMMADOV While targeting foreign investors and entrepreneurs, we aim at promoting Azerbaijan as an attractive investment destination. Some audiences are already quite knowledgeable about Azerbaijan and the opportunities it represents, while some do not know much about our young country. For this reason, we try to provide as much information as possible, including the history of the country. Azerbaijan has always been attractive because of its oil and gas resources. At the beginning of the 19th century Azerbaijan was delivering more than half of the oil produced in the world. This resulted in many inventions and innovations within the sector, including the first oil tanker and the first oil pipeline. As soon as Azerbaijan became independent it opened its doors to foreign investors. In 1994, the “Contract of the Century” was signed. Since then, oil giants such as BP, Chevron, Total, Statoil, and others made their first investments into the country. From that time, Azerbaijan started writing its present history, making the first steps as an independent state.
How is the global perception of Azerbaijan changing?
All the economic achievements in Azerbaijan are, obviously, being noticed by international financial organizations. In 2010 Standard & Poor’s improved the long-term credit rating of Azerbaijan to BBB-, and for the first time Azerbaijan was given Investment Grade status, according to Fitch Ratings. The World Economic Forum’s Global Competitiveness Report for 2010/2011 ranked Azerbaijan first among CIS countries and 57th in the world. The World Bank’s Doing Business Report 2009 also named Azerbaijan as the number one reformer in the world. This was achieved thanks to the reforms in such areas as starting business, registering property, protecting investors, and others. Essentially the report was highlighting the development of entrepreneurship in Azerbaijan. Just to give you a comparison, in 2008 we introduced the “single window” approach for registering legal entities in Azerbaijan. Before 2008, entrepreneurs required more than 70 days, almost three months, to register a company. After the introduction of the “single window”, they require less than three days. In order to make Azerbaijan even more attractive for investors, be it foreign or local, as well as to further facilitate the development of entrepreneurship, a number of tax incentives have been applied. The introduction of simplified taxation has also supported the development of SMEs. Companies with a turnover not exceeding AZN150,000 a year pay 4% tax in the capital Baku and 2% in the other regions of Azerbaijan. Should their turnover exceed this amount they become VAT payers (18%).
After oil and gas, agriculture is one of the most significant sectors in the Azerbaijani economy. In order to further develop and support the agricultural sector, tax holidays and exemptions have been granted to entrepreneurs active in this sector, which again applies not just to local but also to foreign companies. Moreover, from March 2011, Azerbaijan introduced VAT and customs duty exemptions on equipment, machinery, as well as specified agricultural products imported into the country for further production and export purposes. In addition to that, subsidies are provided for local farmers to purchase fertilizers, fuel, seeds, as well as for machinery, rent, and leasing needs.
What is your assessment of Azerbaijan’s import/export profile?
Despite an unfavorable 2010, trade turnover in Azerbaijan was about $28 billion. Azerbaijan exports far more than it imports, and the amount of total imports was $6.5 billion. The main import partners were the countries of Eastern Europe. Exports reached $21.3 billion, and the main destination of Azerbaijani products was the EU. The major exported products included oil and gas, petrochemicals, metals, agricultural products, and others.
How much success is the country seeing in attracting FDI recently?
From 1995 to 2010, out of a total $97 billion of investments made into the country, $54.5 billion were foreign investments. However, domestic investments increased as well totaling slightly more than $42 billion during the mentioned period. As to the sectoral breakdown, the non-oil sector of economy received the largest part of investments, amounting to $54.5 billion. In 2010 we attracted $17.3 billion, out of which $5.2 billion targeted the oil sector, whereas $12.1 billion targeted the non-oil sector, which accounts for the strategy of non-oil sector diversification.
How is Azerbaijan’s infrastructure developing to promote a healthy business environment?
Many mega-projects are underway. One such project is the Baku-Tbilisi-Kars railroad, which is also called the “Iron Silkway”. After the completion of this project in 2012, Azerbaijan will turn into a logistic hub by restoring ancient trade routes that will connect Asia to Europe. Further developments in the oil and gas sector related infrastructure are also expected, and I cannot overstate the importance of such completed projects as the Baku-Novorossiysk, the Baku-Supsa pipeline, the Baku-Tbilisi-Erzurum gas line, and certainly, the Baku-Tbilisi-Ceyhan line, which goes all the way from the Caspian to Turkey’s Mediterranean coast. We have also managed to establish air connections to major European and Asian cities, and Azerbaijan has never been so well connected. Despite the relatively small territory of the country, we have five international airports. The biggest one is in Baku, and it is currently being enlarged. The great number of successful infrastructural projects implemented in Azerbaijan that I’ve mentioned are thanks to the strategic location of the country on the crossroads of Europe
What growth sectors would you like to highlight to potential investors?
Alternative energy is a fast emerging sector, especially after the announcement of 2010 as the “Year of Ecology”. Many projects were launched over the course of that year by a state agency for alternative and renewable energy sources established in 2009. Solar energy will be promising business in the coming years, as Azerbaijan begins its own solar panel production. The Caspian coast is also a perfect source for wind energy, and pilot projects are being developed with the participation of foreign investors. The number of wind farms will be increased, and tariffs are being developed by the government. I am sure the subsidies will be provided, as showcased in many European countries.
The construction sector is also a huge growth area, as you can see that Baku and the regions of Azerbaijan look like a huge construction yard. Major redevelopments are underway to give the country a facelift, and much of the infrastructure is being built from scratch. Many foreign companies are also fighting for a piece of that pie.
Tourism is another important sector. We are learning from the experiences of many countries’ well-known tourist destinations, such as our close neighbor Turkey. We have six international luxury brand hotels opening up in Baku in 2011: Hilton, Fairmont, Four Seasons, Marriot, Jumeirah, and Kempinski. Of course, we do not only aim at luxury tourism, as most tourists prefer budgetary spending. Therefore, a diversification of hotels is being carried out as well. The telecommunications sector is also developing. Soon, Azerbaijan will launch its first satellite. The Minister of Communications and Information Technologies has forecasted that by 2020-2025 the revenues from this sector would be higher than those of the oil and gas sector. We have five major mobile phone operators in Azerbaijan, among which the most recent to enter the market was Vodafone. More than half of the population is registered as an internet user. Online payments, registrations, taxation, and other e-services are being widely introduced as the sector is developing.
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