6 March 2021

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THE CONCEPT OF BIG RETURN

Azerbaijan attracts contractors and investors for projects in the liberated territories

Author:

01.01.2021

Azerbaijan initiated large scale works to restore the infrastructure and to develop a new strategy for reviving the economy of the liberated region of Garabagh. The government will have to attract billion of dollars to implement priority initiatives in line with the recently approved draft state budget for 2021. At the same time, authorities hold negotiations with a number of states, international organizations and private companies to attract investments and participate as contractors in projects for the revival of the liberated lands.

 

In line with the state budget

“We will fund the restoration works on our own. But we want companies from friendly countries also get involved in the restoration of our cities and villages. That’s how we will demonstrate our solidarity with them. We will certainly restore all our cities; we will revive Garabagh and we will make it one of the most developed regions of the world,” President of Azerbaijan Ilham Aliyev said at the recent summit of the CIS heads of states.

In fact, this quote is pivotal, as it has initiated the concept of the revival and restoration of Garabagh. Azerbaijan once again declared that the restoration of Garabagh is not an issue of resources or economic benefits, as foreign media sometimes tried to present. On the contrary, we will gladly spend the necessary funds to breathe life into the region, to create decent living and working conditions for the population.

“We are working on a large concept that will ensure the return to the liberated lands. This document has already been discussed at the Economic Stability Council. The restoration of the liberated territories, as well as the opening of new transport hubs in the region will be an important contribution to the development of the national economy, attraction of investments, creating new business environment and, as a result, increasing income,” Minister of Economy Mikayil Jabbarov said during the discussion of the draft state budget for 2021... According to Mr. Jabbarov, the state budget for 2021 will provide ₼2.2 billion (about $1.3 billion) for the restoration of the liberated territories. The government also plans to attract foreign and private investments for the development of business projects in the region.

One of the main features of the new state budget is that it will provide significant funds for the reconstruction of the infrastructure of the liberated territories and the organization of living and working conditions for returning citizens. “Restoration works in the liberated territories is the most important issue for our state. Hence the special attention to this area in the state budget for 2021," Finance Minister Samir Sharifov said during a meeting of the parliamentary committee. In particular, according to the Ministry of Finance, budget funds will primarily be channelised to the restoration of roads, power facilities, housing infrastructure, educational facilities, healthcare, as well as the restoration of cultural and historical monuments.

 

The process has begun

In fact, some infrastructure projects in Garabagh already started in November thanks to the budget reserves of the current year, as well as the funding and material resources provided by state organizations. This includes the reconstruction of existing roads, as well as the construction of new ones. So, the construction of the 101.5-kilometer Ahmedbeyli-Fuzuli-Shusha highway, as well as the first stage of the new 21-kilometer road from Terter to the Sugovushan settlement is nearing completion. At the same time, another section of the road (7.5 km) is being constructed between the villages of Sugovushan and Talish, which will connect to the Gashalty sanatorium (30 km). At the same time, Azerenerji and Azerishig restore the electric power infrastructure of the liberated territories, including the facilities of national significance in the city of Jabrayil and the village of Hadrut, which already receive electricity. Despite the difficult mountainous terrain, snowy winters and the presence of mined areas, similar works are carried out in Shusha. A 110 kV from the Shukyurbeyli substation will supply electrical power to Shusha. Over 12 km of power lines have already been laid. At the same time, the construction of a 110/35/10 kV substation has begun in Shusha - earthworks are complete and the necessary equipment has already been delivered.

These projects are just a small part of those large-scale works to be implemented in the liberated territories in 2021 and in subsequent years.

As noted above, these works will be implemented as part of the socio-economic concept of restoration projects in Garabagh developed by the relevant structures, including the Ministry of Economy. According to Mr. Jabbarov, in accordance with the draft concept, the main areas of future socio-economic planning are issues related to urban planning and restoration of territories: “A number of necessary legal, economic and financial frameworks, a system of benefits and incentives, projects are already being implemented in accordance with the relevant orders of President Aliyev”.

 

Growth driver

According to some experts, the reconstruction of basic infrastructure and the construction of social facilities and utilities in the liberated lands can take 5-10 years and are estimated at more than $10 billion. Taking into account the funds needed for housing construction and investments in small and medium-sized businesses this amount may increase by an order of magnitude.

"The implementation of investment programs in the liberated lands will boost business activities next year and further increase the country's economic potential," Elman Rustamov, chairman of the Central Bank of Azerbaijan, said. Obviously, amid the ongoing global economic crisis, as well as the low demand for energy resources and the restrictions imposed by the lockdown, the implementation of large-scale construction and restoration works in Garabagh will become a kind of growth driver for a number of sectors of the Azerbaijani economy. Construction companies, manufacturers of building materials, power and gas equipment, trucks, etc. can count on multimillion-dollar contracts.

However, it is just as obvious that the state budget cannot be the only source of funding all the planned large-scale projects to revive the region.

Accordingly, the key points of the new socio-economic concept are the active use of public-private partnership and the widespread involvement of private investors in future infrastructure and business projects. “In particular, as part of the strategy of post-conflict revival of Garabagh, local and foreign private investments, loans, grants, technical assistance, venture capital, etc. will be attracted,” Vusal Gasimli, executive director of the Center for Analysis of Economic Reforms and Communications said. Following the example of Israel, widespread use of the diaspora investment model is possible in Azerbaijan, including the attraction of capital from compatriots from abroad. But to make this work, it is necessary to create relevant management, monitoring and evaluation mechanisms, as well as a transparent and accountable mechanism for financing regional projects, provide private investors with access to concessional lending, and provide fiscal, utility and other preferences.

 

Ready to support

Due to the scale and capital intensity of the upcoming transformation projects in Garabagh, attracting foreign investments and funds from international financial institutions (IFIs) is becoming a primary mission of the government. Businessmen from Turkey, Italy, China, Iran, the US and a number of other countries express their readiness to participate in investment projects and restore infrastructure. Two Turkish companies are already contractors for the construction of a highway connecting to Shusha. In general, Turkish business is ready to actively participate in the development of construction, agriculture, tourism in Garabagh. No less large-scale participation in these works is expected from the Italian business community, including the restoration of energy infrastructure, urban planning, clearing landmines, restoration of historical monuments, cooperation in tourism and agriculture.

By the way, Italy became the first EU state, which sent a delegation to Azerbaijan immediately after the war. On December 18, 2020, Italy and Azerbaijan signed an agreement on cooperation in the development of the energy infrastructure of Garabagh. Thus, under a 5 million euros contract, the Italian company Ansaldo Energia will provide equipment for four 110 kV substations to be built in Agdam, Fuzuli, Kalbajar and Gubadli regions of Azerbaijan.

“Restoration works have already started in the liberated territories. The first contract was recently signed with one of the Turkish companies. The second contract will be concluded with a company from Italy,” President Ilham Aliyev said at the summit of the CIS heads of state.

Remarkably, a number of post-Soviet countries also show a genuine interest in investing and participating in contract works. Azerbaijan already received state-level proposals from Ukraine, Kyrgyzstan, and Russia.

Iranian companies are showing no less interest in economic projects in Garabagh. They can provide building materials, as well as services for the construction of housing, roads and the restoration of infrastructure in the region. Recently, Iranian President Hassan Rouhani said that the liberation of Azerbaijani territories would have a positive effect on Iran's economic activity. Among other things, he mentioned the agreements on the construction of the Khudaferin hydroelectric complex and two hydroelectric power plants, as well as new opportunities in the transport sector, taking into account the prospects for connecting the railway line from the Nakhchivan Autonomous Republic with the Tabriz-Khaveran steel mainline.

Many IFIs and other international organizations, the traditional partners of Azerbaijan, are also ready to act as donors and partners of Azerbaijan in the revival of Garabagh. For example, Azerbaijan holds negotiations with the Organization of Islamic Cooperation and its specialized institutions, including the Islamic Development Bank. OPEC member states have expressed their readiness to support Azerbaijan in the reconstruction of the territories at official level. Probably, in the near future, relevant proposals will be submitted to the boards of the Asian Development Bank and the World Bank.

What about the growth of Azerbaijan’s external debt? “Today Azerbaijan has ample opportunities to attract foreign debt. The ratio of external debt to GDP is about 17%, and according to this indicator, our country is one of the ten countries with the least volume of external debt,” expert-economist Eldaniz Amirov said. In addition, impressive financial reserves of the Central Bank and the State Oil Fund gives grounds to believe that the risks associated with external borrowing are insignificant. Finally, according to a number of experts, a significant amount of mineral and other natural resources available in Garabagh, as well as agricultural and recreational opportunities, will make it possible to establish profitable production in a relatively short time and to confidently cover the costs of restoring the destroyed infrastructure.



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