Business

AZERBAIJAN's INVESTMENT OPPORTUNITIES

By Anar Jabrayilli Azernews Staff Writer

1. Potential natural resources and economic infrastructure

Azerbaijan possesses sufficient natural and labor reserves, as well as production infrastructure, to attract foreign investors and businessmen. Restoration of the ancient "Silk Route" within the TRACECA program could further enhance the investment influx in the region.

The 1996 "International Petroleum Encyclopedia" shows that the Caspian has oil reserves of over 4 billion barrels, with Azerbaijan's share of 1.5 billion tons of oil and 3 trillion cubic meters of gas. The Azerbaijan government has signed 21 international contracts with 33 companies from 15 countries since September 1994. As a result, $3 million has already been invested in the country, while total investment volume in 30 years expected at $60 million.

However, Azerbaijan's natural resources aren't confined to oil, as the country is rich in other recoverable minerals, including 230 million tons of ore, gold, non-ferrous metals, construction materials, etc., which also represent attractive business spheres.

The Filizdagh ore deposit with adjacent pyrite deposits of Balakan are very promising. The most valuable components of the deposit are copper, zinc, silver, gold, bismuth, cobalt, potassium, tellurium, etc. Restoration of the Dashkasan ore mining works, with estimated capacity of 3,000-3,200 tons, and the Ganja aluminum enterprise with yearly designed capacity of 3,000 tons, can enable efficient development of deposits. Moreover, the Aydagh zealot deposits with industrial capacity of 28 million tons in Tovuz province may lay foundation for diversified production.

Also lucrative are confirmed mineral water resources of 730 million cubic meters in 5 iodine-bromide deposits.

Rich hydrocarbon reserves in Azerbaijan are paving the way for oil-field equipment and petrochemical industry. Before the independence, a third of the country's industrial potential was made up of the mentioned industries. But the loss of markets, socio-economic crisis, as well as lack of funds resulting from the collapse of the Soviet Union, led to the shut-down of industrial enterprises. Besides, physical and moral obsolescence of industrial equipment reduces production benefits. In Soviet times, 130 mechanical engineering and 100 petrochemical and chemical enterprises were working to full capacity, but only a few of them are active now.

Azerbaijan has immense opportunities to expand production. Geographical and climatic conditions are favorable for the cultivation of various crops, including cotton, grapes, cereals, tobacco, tea, fruits, vegetables, potatoes, rice, sugar beet, citrus fruits, etc. It is also possible to hike exports, by attracting investment. One of the priority directions is primary processing of crops. Also feasible is the establishment of dairy, wool, leather, silk enterprises. The nature and climate favor the development of tourism, it is possible to set up sanatoriums along the Caspian coast and the Talysh mountains. Rich fish reserves of the Caspian, the Kura and Araz rivers are also very promising.

Although the banking system has just been established, there are 12 commercial banks and 15 foreign investment banks, providing a wide range of services, including money transfers. Good hotels, theaters, restaurants, supermarkets and communication services are particularly important for foreign investors.

2. Investment environment and legal framework

Azerbaijan has enough labor resources, with 3.7 million of the country’s population able-bodied. Despite the rampant exodus of labor force to Russia, it is beyond a doubt that proper income generation and employment environment could lead to sustainable development. However, the available vast natural and labor resources is not the only prerequisite for investment inflow. Political stability and favorable legal framework are also of great importance. Azerbaijan has been joining international conventions, agreements and contracts, undertaking commitments of honoring the regulations defined by the international community and approved in many countries. The bilateral agreements signed envision mutual investments, cover taxation and customs issues.

Such documents have already been signed with US, Japan, Germany, UK, Ukraine, Russia, etc. Moreover, the Azerbaijan parliament has ratified a number of legal documents pertaining to entrepreneurial activities, including laws “On investment”, “On Joint Stock Companies”, “On bankruptcy”, “On property”, ”On entrepreneurial activities”, “On banks and banking”, as well as the Labor Code, Customs Code, Tax Code, Civil Code, etc. Nevertheless, laws “On state service” and “On corruption and bribery”, aimed at eliminating bureaucratic obstacles and red tape, have not been adopted yet.

Economic reforms are underway in Azerbaijan, though rather slowly. According to the legislation, foreign nationals can participate in privatization of state property by obtaining options. To date, foreign investors have purchased 18.2 million options, taking full or partial control over nearly 100 enterprises. After being privatized by foreign investors, the Garadagh Cement, the Khirdalan Beer and the Mardakan Broiler JSCs have become profitable enterprises. Major industrial facilities, including SOCAR enterprises, the International Bank, big oil and petrochemical enterprises in Sumgayit, mechanical engineering plants, etc. are expected to undergo privatization this year. After the adoption of the second privatization program, the mentioned entities will be put on investment tenders and sold.

ADVERTISING REVENUES DECLINING BY YEAR

Beginning from 1997, revenues from advertising - street, media (on television, radio, newspapers and magazines) and transport vehicles - have been steadily declining. As where in 1997, total advertising revenues constituted $12 million, in 1998 - $6 million, in 1999 - $4 million, and under $1.5 million in 2000, according to the president of the Union of Advertisers of Azerbaijan Hajiami Atakishiyev.

According to the head of the advertising section under the Mayor's office of Baku Ilgar Valizadeh, a similar tendency is observed regarding revenues from street advertisements: $1.2 million in 1997, $1.25 in 1998, $0.65 million in 1999, and less than $0.5 in 2000.

The structure of advertisements has also changed over the mentioned period. For instance, in 1995-1997 80% of ads were commercial and 20% political, in 1998-1999 - fifty-fifty, while in 2000 commercial ads constituted just 15% and political 85%.

For comparison, yearly revenues from all types of advertising in Estonia is $43 million, in Latvia $76 million and in Hungary $167 million. In Azerbaijan, the biggest yearly revenues, in 1997, made up only $12 million.

"BAKU CASTEL" STARTS BEER EXPORT

The "Baku Castel" Joint Venture has started exporting beer, having dispatched 40,000 bottles of "Khirdalan" beer to Russia, according to the JV's commercial director Shahin Yusifov.

He said the company is planning to open exports to Chine, Turkmenistan and other countries.

The JV has been founded by French "Castel Group" and "Khirdalan" joint stock company. The enterprises produces over 40% of beer marketed in Azerbaijan, while in 2001 the indicator is expected to reach 60%. Yearly capacity of the plant is 5 million deciliters, which exceeds domestic needs of the country. At present, the JV produces "Khirdalan", "Castel" and "Ganjlik" beers.

BULLA-DANIZ OPERATIONS ENVIRONMENTALLY FRIENDLY

All oil and gas exploration and production operations on the Bulla-Daniz field are in accordance with accepted standards on purification of drain waters and control over wastes. Thanks to this, the seabed and water communities are in a satisfactory condition and do not require special environmental activities.

This is the laboratory conclusion of the SOCAR department for complex offshore geological researches. It is stated in the document that the impact of stationary and semi-submersible drilling rigs has told on the concentration of metals, in particular iron and copper, in bottom sediments. The composition of chemical components in the water, radio-nuclides and hydrocarbons has been found within the allowed norm.

CSC DRY-CARGO VESSELS MAINLY NAVIGATE OUTSIDE CASPIAN

The dry-cargo fleet of the Caspian Shipping Company (CSC) transported 1,331,000 tons of various consignments in 2000. The bulk of this volume, 1,105,000 tons or 83%, was transported outside the Caspian basin - between the ports of the Azov, Black, Mediterranean and other seas. Both indices exceed the 2000 performance target.

Dry-cargo vessels navigating in the Caspian have also surpassed the plan for 2000.

GRANT ALLOCATED FOR LIVESTOCK DEVELOPMENT

The Dutch government has allocated a grant of $450,000 as part of the artificial insemination of cattle and increase in livestock project, according to the head of the animal husbandry under the Ministry of Agriculture told AssA-Irada Tuesday.

The project is designed for 5 years and will be implemented in Ismayilli, Goychay and Absheron.

RED CRESCENT SOCIETY AIDING QUAKE AFFLICTED

The Red Crescent Society of Azerbaijan has distributed humanitarian aid allocated by the US Red Cross Society among 60 families (a total of 323 people) residing in the Haji Zeynalabdin Taghiyev settlement of Sumgayit afflicted by the November 25 earthquake. The families have been temporarily settled in railway cars.

The assistance packages consists of first-need articles - electrical kettles, heaters, bed-linen, blankets and mattresses, according to the Red Crescent society.

WB TO ASSIST IN POVERTY ERADICATION STRATEGY

The visiting WB director on Azerbaijan Mrs. Judie O'Connor told vice-premier, chairman of the State Committee on Refugees Ali Hasanov Thursday that WB would help Azerbaijan prepare its "Poverty eradication strategy".

According to her, the Ministry of Economics, State Committee on Refugees and other government institutions contribute to preparation of the program. Mrs. O'Connor also said WB would continue facilitating solution to refugee unemployment problems.

Thanking WB for the care for refugees and IDPs on behalf of the Azerbaijan government, Mr. Hasanov asked for assistance in building refugee settlements in Agdam and Fuzuli.

"AZERBORU" READY FOR PRIVATIZATION

ACPI consulting company, winner of the tender for the selection of an economic consultant in privatization of the Azerbaijan pipe-rolling plant "AzerBoru", has said it is ready for making a pro-privatization assessment of the enterprise.

According to a Ministry of State Property source, financial balance sheet has been compiled as experts are considering the most interesting aspects of privatization of the metallurgic industry giant.

WAR DAMAGE CAN BE EVALUATED WITHIN 1.5 MONTHS

"If asked by the OSCE Minsk Group, or governments of Azerbaijan and Armenia, WB specialists can evaluate the damage inflicted by the war within 1.5 months", the visiting WB director for Caucasus countries Mrs. Judie O'Connor said Friday.

According to her, the bank was ready to carry out such work back half a year ago, but it was asked to do so. She said in doing the job, the bank will need the assistance of the two countries, including NGOs.

Mrs. O'Connor didn't rule out the possibility of preparing an income generation project for IDPs, which would envision allocation of mini-credits to farms.

BANKS BUYING DOLLARS, DESPITE GROWING EXCHANGE RATE

In late 2000-early 2001, the Baku Inter-bank Currency Exchange saw banks actively buying hard currency, in particular the US dollar. On January 3, over $6 million were bought, which, as compared to December 2000 (less than $0.8 million), seemed incredible. At the same time, the rate of the Manat has declined almost 10 points, with the current exchange rate of a US dollar standing at 4,620 manats.

In an interview with Azernews a ministry of economics expert has said the National Bank, which had until recently been declaring a gradual reduction in the exchange rate in the interests of exporters, has decided to intervene in the process of inflation and released hard currency in the market.

It is hard to judge how real the suggestion is. In any case the National Bank keeps saying nothing extraordinary is taking place. In the meantime, the dollar is strengthening amid anxiety in the stock exchange.