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About the Azerbaijan Economy
Friendly foreign direct investment(FDI) laws
Foreign investments are protected by guarantees provided by the government and legislation, including:- Guarantee against deterioration of legislation - the general rule is that legislation in force at time of making an investment continues to apply for subsequent 10 years;
- Guarantee against nationalization and requisition - foreign investments are not subject to nationalization (except in cases of harm to population and state) and requisition (except in cases of natural disaster, epidemics, accidents, emergencies). Foreign investors are guaranteed immediate, adequate and effective compensation in case of nationalization and requisition. Compensation should be commensurate to the amount of the investment at time of nationalization or requisition, payable in foreign currency and may be freely transferred abroad;
- Guarantee of compensation of damages - foreign investors are entitled to compensation of damages, including lost profits, incurred as a result of unlawful acts of state authorities;
- Guarantee of repatriation of profits - foreign investors are entitled to repatriate profits derived from foreign investments subject to payment of applicable taxes and duties.
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Most people have an incorrect opinion of Azerbaijan:
- An unstable CIS state, previously at war with its neighbour
- Cannot trusts its small, unknown non-transparent financial system
In reality, it's a rich oil based economy. Hitler unsuccessfully tried to capture the Azerbaijan oil fields via Stalingrad. Although extraction from its land based oil reserves have peaked, huge hydrocarbon reserves measured in many billions of barrels, lie under the Caspian Sea, which exceed other oil rich nations reserves such as Kuwait. Most of the Western energy giants e.g. BP (UK), Chevron (USA), Statoil (Norway), Total (France), Eni (Italy), ConocoPhilips (USA), Itochu (Japan), etc. have joint venture agreements and strategic partnerships with the State oil company of Azerbaijan. More than USD 30 billions to date has been invested in the oil infrastructure with at least another USD 30 billion expected in the next decade. It is quoted The Caspian Sea to the 21st Century is what the Persian Gulf was to the 20th Century. European, American and Far East nations, eager to find alternate supplies from Russia are clamoring to sign up oil supply contracts. Western firms help pump nearly 1 million barrels per day through the BTC pipeline, expected to double over next few years. GDP has grown some 25% annually for the past few years. Azerbaijan withstood the difficulties of the recent credit crisis relatively better compared to other countries thanks to its solid foreign assets position and its limited integration to the global financial system. The growth in the 2009 is a respectable 4%. Inflation has fallen from to 15% to 3% in the past year.
The medium term outlook is optimistic as its oil reserves will last at least 30 years, its willingness to allow foreign companies to invest new oil extraction techniques, its newly functioning BTC oil export pipeline to Turkey.
However, its unresolved territorial conflict with Armenia, inadequate Soviet-era infrastructure and possible contention with Caspian Sea neighbours regarding borders has discouraged some foreign investment.
Financially, Azerbaijan has excellent long term prospects for continued growing surpluses on the current account and consolidated budget balances based on a rapid expansion of oil production and exports. The inflow of petrodollars is swelling government coffers, already exceeding USD 13 billion foreign reserves, significantly higher than the country's USD 4 billion total foreign debt. International Credit Ratings
Moody's on 19 June 2009, assigned a stable outlook on the Republic of Azerbaijan's Ba2 country ceiling for foreign currency bank deposits and the Baa2 country ceiling for foreign currency bonds, citing "little government debt and rising revenues from oil exports.
Fitch assignes a credit rating for Azerbaijan of "BB+" long-term and B short term.
Standard & Poor's has not yet rated Azerbaijan.
Interest Rate Outlook
Fitch states "While capital from the ongoing oil boom will continue to be the key factor lifting the manat (local currency), we expect hot money inflows from foreign investors eager to take advantage of the emerging local debt market to also act positively on the currency over the medium term". German Commerz bank has just opened a representative office and states “Azerbaijan has rich resources, competitive environment and high speed of economic growth. These three factors became the basic ones for our arrival in Azerbaijan”. As foreign exchange flows into the country, one can assume that the high interest rates would begin drop over the next few years. For example, five years ago, both Russia and Kazahkstan banks offered at least 10% for USD deposits. Today, banks in those countries offer little premium over USA Fed rates as they no longer suffer foreign exchange shortages.
Download a Brochure on Azerbaijan.
Strength of Azerbaijan currency
The previous Manat was introduced after independence from Russia in 1992 - 2002.
The exchange rate was initially USD 1 equal to Manat 4,990 , and steadily appreciating due to inflow of petrodollars to Manat 4,770. In 2006, the new Manat (AZN) was introduced at Manat 5,000 : AZN 1. (i.e. previous exchange rate was USD 1 equal AZN 0.998 in 1992 to AZN 0.954 by 2006.
Today USD 1 equals AZN 0.806, that is the USD is buying less and less AZN each year. i.e. continued constant significant appreciation for 17 years from parity to USD 1.24 today.
Azerbaijan Economy Report Links:
- Azerbaijan's Economy Forecast To Grow 6.8% in 2010.
- ABC Australia TV documentary on Azerbaijan is the next Kuwait
- Business week 2007 article on economy of Azerbaijan
- Asia Development Bank October 2007 credit report for USD 40 million loan toInternational Bank of Azerbaijan
- Azerbaijan exports nearly 1 million barrels of oil daily via Turkey through the BTC oil pipeline
- Article on Azerbaijan oil production
- Article on local banks providing smaller loans to investors which can yield big profits by modernizing oil extraction, such as steam injection.
- What the Persian Gulf was to the 20th Century may be what the Caspian Sea is for the 21st
- Asia Development Bank report on Azerbaijan economy for 2009 and 2010.
Videos on Azerbaijan's Oil Based Economy
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