Azerbaijan is the largest and most prosperous of the South Caucasus states due to its hydrocarbon wealth, and is roughly the size of Scotland. The currency in Azerbaijan is the ‘manat’. It is home to about 9 million people and a number of different ethnic groups. The country borders Russia and Iran on the Caspian Sea, as well as Georgia, Armenia and Turkey. As a consequence of Azerbaijan’s conflict with Armenia, Nagorno-Karabagh, about 14% of the country’s territory has been occupied by Armenia since 1994 and 10% of Azerbaijan’s population displaced.
Azerbaijani is the official language of Azerbaijan but Russian is also still widely used, and most people (at least in Baku) are bilingual. English is also quite widely spoken and understood in Baku, although fewer people speak English outside the capital.
Azerbaijan is classified as a presidential republic, and is currently led by President Ilham Aliyev who took over as president from his father, Heydar Aliyev, in 2003. Heydar Aliyev was president between 1993-2003. Azerbaijan’s national identity, based on citizenship, is open and inclusive. The cultural and social rights of ethnic minorities are protected in an attempt to prevent separatist sentiments. Refugees and Internally Displaced Persons are well integrated into society. Azerbaijan is a secular state, yet state and religious organisations coexist in a carefully orchestrated balance.
Azerbaijan can be a challenging market, and it is essential to conduct proper research and establish exactly who you are doing business with. In addition to the UKTI team in the British Embassy Baku, advice is available from a number of international legal and consulting companies. The capital, Baku, is the dominant commercial area within Azerbaijan. Almost all of the 150 UK companies active in Azerbaijan are based in the greater Baku region. There is little to no foreign investment / commercial activity outside Baku. The Government of Azerbaijan is developing proposals to develop free trade zones, but this is still under discussion.
Market entry and start up
It can be very difficult to do business with Azerbaijan remotely. Azerbaijani companies often will not respond to emails or phone calls. Information on Azerbaijani companies can be difficult to access, with few companies having comprehensive English language websites. Due diligence can be difficult as many companies will not have audited accounts. Personal relationships are very important and many local companies will also have some form of political patronage to provide protection from the difficult business climate. Businesses should also be aware of the risk of corruption and that large formal and informal business monopolies exist in Azerbaijan which can add an additional layer of complexity to market entry.
British companies can approach the Azerbaijani market in several ways: Export direct; Appoint a distributor; Establish a local office or subsidiary; Form a joint venture. In any case, including through direct sales, it is advisable to have some form of local representative. The appointment of a local partner/representative will only be the first step. Azerbaijan is a market in which personal networks predominate in the business environment, and where individual relationships therefore are important. This requires an investment primarily of time and personal presence. Regular visits to the market, especially during the early phase, are an important part of building a successful business.
Government tenders can be found here: www.tender.gov.az
Strengths of the market
In brief these are:
- A strategic location (gateway between Europe, the Middle East and Asia).
- A large UK business presence with over 150 UK companies represented in Azerbaijan.
- Extremely rapid economic growth.
- A reforming economy (The World Bank’s “Doing Business” report named Azerbaijan as the number one reforming economy worldwide in 2008. In the latest 2013 ‘Doing Business’ report, Azerbaijan is ranked 67th out of 185 economies considered in terms of ease of doing business. This places it ahead of its neighbour Turkey [71st] and is above the regional average for Eastern Europe and Central Asia which is 73).
- English increasingly spoken, particularly by the younger generation.
Oil & Gas
Azerbaijan has been one of the fastest growing producers of both oil and gas in recent years. There are strong current and long-term prospects in all areas of the oil and gas industry, and the Azerbaijani government has sought to provide a stable climate for overseas investment. BP is the dominant operator in Azerbaijan, and the majority of the 150 or so British companies active in Azerbaijan form part of their supply chain.
This is one of the most dynamic sectors of the economy, with huge growth in banking, insurance, leasing and other areas. The banking sector is comparatively under-developed, and the UK, with City of London expertise, is well placed to help the development of financial services within Azerbaijan.
The Government of Azerbaijan is investing heavily in infrastructure projects, including power generation, utilities, transportation and construction projects. Some of these projects receive funding from international donors such as the World Bank, EBRD and Asian Development Bank.
Azerbaijan is a growing market for consumer goods, and many Western shops are already visible on the streets of Baku. These are often franchises, operated by local retail groups. There are two distinct markets with a remarkable number of luxury goods for the very wealthy and an increasing selection of mid-range brands aimed at the growing Azerbaijani middle-class.
Spiralling oil revenues have fuelled a construction boom in the capital of Azerbaijan, Baku. Although UK firms may be unable to compete on price with local, Russian or Turkish companies on more basic jobs, there are strong opportunities in areas such as architectural services and project management.
The Azerbaijani government is eager to promote foreign investment in a range of areas including agriculture, telecommunications, IT and tourism. There is also increasing interest in the education sector, and the UK education industry is highly regarded in Azerbaijan.
Azerbaijan has grown rapidly in recent years and has weathered the recent economic crisis relatively well. However in 2011 the economy struggled, growing by only 0.2% mostly due to a relative drop in oil. According to Azerbaijan’s State Statistical Committee in May 2013, in the first four months of 2013 the country’s economy grew by 3.1% year-on-year, with the non-oil sector surging by 10.9% in the same period.
Azerbaijan’s economy is predicted to grow by 3-4% across the whole of 2013. Real GDP growth will be boosted when the Chirag oilfield comes on stream in 2014. Gross fixed investment will rise over the forecast period as preparations for Shah Deniz Phase 2 gather pace. Azerbaijan’s oil sector has historically been the mainstay of the economy and is likely to remain so for some time, buoyed at present by historically high oil prices.
The progress of structural reform has been uneven however. Large transition challenges remain across most sectors. The financial sector is dominated by a large state-owned bank and a number of smaller, undercapitalized and non-transparent banks. State companies continue to dominate many key industries, including the oil, gas, electricity and telecommunications sectors. The private sector suffers from bureaucratic hurdles in registration and licensing procedures, plus a high level of corruption which particularly affects small and medium-sized enterprises (SMEs). Improvements are expected however as Azerbaijan reduces its trading barriers as part of its accession process to the World Trade Organisation (WTO). Progress on Azerbaijan’s WTO status can be found here:
20 Jan Day of the Martyrs
26 Feb Day of Khojaly Massacre (26 February 1992)
8 Mar Women's Day
20-21 Mar Novruz Bayramy (New Year)
30-31 Mar Remembrance Days of the Massacre of Azerbaijanis (1918)
9 May Victory over Fascism Day (1945)
28 May Republic Day (founding of the Democratic Republic of Azerbaijan 1918)
15 Jun Day of National Salvation
26 Jun Army and Navy Day
11 Sep End of Ramadan
18 Oct Day of Independence (1991)
12 Nov Constitution Day
17 Nov Day of National Revival
17 Nov Feast of Sacrifice
31 Dec Day of Azerbaijani Solidarity