Author: Namig HASANOV
As soon as the successful counter-offensive to liberate the occupied lands of Azerbaijan in Garabagh was over, Azerbaijani authorities launched the plans to restore the region, including the destroyed infrastructure. Experts forecast different time frames required to rebuild the region from scratch - from 5 to 15 years. How much money will be required to rebuild Garabagh and how will be the post-war image of Garabagh in the world?
We discussed these and other issues with a fellow of the Institute of Economics of the Russian Academy of Sciences, Alexander KARAVAYEV.
"Alexander Valeriyevich, what will be the economic effect of Azerbaijan's de-occupation of its territories in Garabagh?"
"In general, there is no need to discuss whether the de-occupation of territories is economically beneficial or not. This is obviously a major benefit for Azerbaijan, since the return of 10,000 square kilometres of land will boost the development of the national economy. On a larger scale, such as Russia, then perhaps the effect would not be so exceptional. But Azerbaijan returned a significant part of its territory, which will undoubtedly be followed by the physical growth of its national economy. Benefits cover all possible costs, increasing both the volume of the state budget and GDP. Moreover, this also applies to the period of necessary large-scale expenditures because investments and increasing budget expenditures also mean the increasing volume of the economy.
“In the short term (1-3 years), we will see large expenditures for the initial infrastructure development of the liberated territories. Initially, these will include costs of the main infrastructure: roads, pipelines, power lines, transformers, distribution networks, etc. The work have already begun and will continue to expand. A little later, when the area is cleared of mines at least partially and the contours of industrial planning are clear, the active construction of settlements will begin. Plans and terms can be adjusted. This process will also largely depend on the development of agrarian and logistics centres, new industrial parks and tourist clusters – something similar is already being created in Shusha. Also, it is necessary to take into account the volume of external investments and administrative planning of construction works or projects.
“Bringing the region to the average level of development is a medium-term goal of the Azerbaijani authorities. According to my estimates, this may take 3 to 5 years. As to the promising areas of production in the liberated territories, I think that grain products may have very good chances for development. It is known that the volume of wheat and other grains produced in Garabagh during the occupation reached a quarter of the domestic production in Armenia. Now all this can be renewed for the benefit of Azerbaijan.
“In the next stage, the region will be brought to the level of Azerbaijan's visiting card, which was announced by President Ilham Aliyev. New enterprises in the liberated territories will begin to make profit and bring money to the budget. The described long-term perspective (5-7 years) may extend to 10 years.
“We can compare the ongoing and future processes with the program of socio-economic development of the districts of Azerbaijan. You need to think on this scale. Moreover, this process will not have finite time boundaries.”
"Are there any examples of the fastest restoration of destroyed infrastructure in the world? How long will it take for Azerbaijan to do this, given all the current circumstances?"
"I believe that the main work on finding investors will be carried out through various diplomatic lines, through the bilateral relations, at investment forums, etc. With regard to examples of large-scale infrastructure construction, we can recall the unification of Germany. Although GDR was one of the leading countries of the social bloc, West Germany had to invest in East Germany for about ten years in order to raise the level of its economy. May be this is not an identical example in case of Azerbaijan. Each situation is unique."
"How realistic is it to receive compensation for losses from the occupation of lands, destroyed infrastructure, etc.? Are there precedents?"
"Obviously, Azerbaijan has suffered losses from the illegal exploitation of its territories. To assess the volume of incurred damage, it is necessary to involve an independent international auditor. This may be followed by raising the issue of compensation for the losses of internally displaced citizens of Azerbaijan, which should cover the assessment of damage due to the loss and destruction of real estate, loss of jobs, etc. The expert opinion must be submitted in a package, in the form of a general claim.
“As for historical examples of reparations, in addition to Germany, which paid compensation after the Second World War, we can also mention Japan, which for 12 years have compensated $223 million in losses to Indonesia after signing a peace treaty with the country.
“It is required to have a decision of the International Court of Justice to make the opposing party pay compensation. Azerbaijan will have to collect the necessary documentation and file a claim to the court.
“Problems with decisions of the International Court of Justice are associated with their legitimisation. If the plaintiff is not a country from the top ten member states, then the decision can be delayed for many years. But there may be a need for such a long review period. Azerbaijan may be interested simply to place such a claim in the first place – an additional argument confirming the fact of the occupation of Azerbaijani territories, which can also play an instrumental role as one of the mechanisms to contain a possible revenge of Armenia.”
"One of the main issues on the agenda is the unblocking of transport communications. What does this promise to the future of the region?"
"All large economies of the region are interested in the connection of Azerbaijan to international transport corridors, such as North-South or East-West, including Russia, Turkey and Iran. This is like the first level of communication.
“The second level is the construction of a network of regional roads to expand the dense network of connectivity of Azerbaijani territories. Turkey will be connected to these channels of transport routes, as a country with ports of the open sea and connections with European communications.
“The key point here is the construction of a railway line from Zangilan through the territory of Armenia to Julfa, which already has a connection with the Iranian railway network to the Persian Gulf.”
"Revanchist forces in Armenia prevent the opening of the Meghri corridor. What levers of pressure can Russia and Azerbaijan use to change the situation?"
"I do not think that these forces will be able to prevent the unblocking of transport communications, as they are attractive not only for Russia and Armenia, but also the Armenian companies. For example, a subsidiary of Russian Railways Co. (RZhD) in Armenia will participate in the restoration of communications. The company also employs the citizens of Armenia. Plus part of the transported goods will be Armenian. First of all, the Armenian mining companies are interested in this corridor.
“The protesters blocking the initiatives of the former Prime Minister of Armenia Nikol Pashinyan cannot prevent the interests of large businesses. It is therefore worth mentioning the position of the Armenian Minister of Economy, who avoids any accents in his statements that would question the unblocking of communication lines. On the contrary, he emphasizes that this will benefit Armenia.
“In general, it is not only about the opening of a transport road but the resumption of economic ties between Turkey and Azerbaijan. So far, the Armenian government is doing the least of what they could or should have done, according to the signed trilateral statement. By the way, we should also take into account the preparations for the early parliamentary elections in Armenia.”
"What is the potential for the development of the East-West and North-South transport corridors?"
"The issue of transport corridors does not depend on the wishes or potential of a single country. It also does not depend on the potential of cross-border transportation from neighbouring countries. International transport corridors (ITCs) are deeply tied to the dynamics of global transportation, which, in turn, depend on world rates and quotations for the main types of commodities. Therefore, it is very difficult to make such plans.
“At the beginning of 2021, the first train with containers from China reached Europe through the Caspian region via the East-West ITC. But the share in the total volume of traffic is still negligible. The container train is an example of the growing demand from Chinese executives for ground transportation. With the decreasing maritime container traffic, the state strategy of China assumes the activation of land transportation. The global Road Initiative project initiated by China is primarily intended to diversify the export logistics of China. And maritime routes will, in any case, maintain leadership for the time being due to their scale.
“We can compare the figures for 2020: the Suez Canal handles over 1 billion tons of cargo annually. Russian Railways - over 900 million tons annually, including the lion's share in domestic traffic. Baku International Trade Port – about 5 million tons of net transit. There will certainly be growth in 2021, but it's hard to say when the doubling will be achieved. Trans-Caspian transportation tend to increase. But this is more of a regional story than a global one.
“The medium-term task for the East-West ITC is 12-15 million tons annually. At the same time, the works carried out by Azerbaijan and its neighbours is very important for maintaining local economic connectivity.
“North-South has problems with the connection of Indian companies. There is still much work to do in this direction. Azerbaijan and Iran can now expand cross-border ties, launch as many joint projects as possible connecting economies of both countries. India will catch up with time. If Azerbaijan can fully accomplish its mission to connect the liberated districts to this project, this can bring additional dividends such as trans-regional integration.
“At the same time, there must be enough manufacturers of daily consumption products in the region to avoid dependence on Chinese imports. There are already signs of joint cooperation in the field of petrochemistry, automotive industry, agriculture, and the processing industry.
“The future belongs to the assembly of cars on electric motors and unmanned vehicles used in agricultural machinery. We should master these skills in respective local markets as well. For example, take the construction of a subsidiary of Rostselmash in Azerbaijan. As part of the project, it is possible to increase the technological level of cars and introduce unmanned motion devices in the production chain. These products will be immediately in demand in foreign markets. The same applies to the gas plant in Hajigabul. Low-tonnage trucks will also be of interest in other regions, outside of Azerbaijan. The range of these products will expand and, accordingly, demand will grow.
“In short, the Caspian region is yet to pass all the stages of industrialisation. Development of various modes of transport, transit corridors and global demand will heavily influence these processes.”