BUSINESS WITHOUT POLITICS

The visit of Russian President Vladimir Putin to Baku in August 2013 heralded the intensification of contacts between Azerbaijan and Russia. This applies not only to politics but also to economics. Over a period of less than a year that has passed since that visit, we have witnessed the increasing number of contacts between government institutions of the two countries, Azerbaijani and Russian companies, as well as Azerbaijan's contacts with certain regions of the Russian Federation.

While over the past four years only 23 events were held with the participation of representatives of Azerbaijani and Russian business circles, or nearly one event per two months, already three Azerbaijan-Russia business forums took place in the last three months alone. Since the beginning of 2014, Azerbaijan was visited by local governments and entrepreneurs from Moscow, the Ulyanovsk, Sverdlovsk and Kaluga regions, the Stavropol Territory, and the Udmurt Autonomous Republic. In addition, the traditional Azerbaijan-Russia Regional Forum including a business forum will be held in Qabala late in June.

Meanwhile, Minister of Economic Development of Russia Alexei Ulyukayev visited Azerbaijan last week. Notably, ministers of economic development of the Russian Federation have not paid independent visits to Azerbaijan for almost eight years. The last such visit to Baku was made by German Gref, the then Minister of Economic Development and Trade of Russia, in October 2006.

Minister of Economy and Industry of Azerbaijan Sahin Mustafayev says that as many as 570 companies with Russian capital are currently operating in Azerbaijan. Russian investments in Azerbaijan's economy are estimated at 1.8b dollars, whereas direct investments of Azerbaijani companies in the Russian economy amount to 1b dollars.

During Ulyukayev's visit, the Ministry of Economic Development of the Russian Federation and the Ministry of Economy and Industry of Azerbaijan signed a memorandum of cooperation. In addition, the sides intend to sign the intergovernmental agreements "On the promotion and reciprocal protection of investments" and "On creation of a trade and exhibition centre of Azerbaijan on the territory of the All-Russian Exhibition Centre" and a long-term programme of economic cooperation. Thus, the agreement "On the promotion and reciprocal protection of investments" is likely to be signed in July.

Pursuant to the memorandum signed in Baku, the parties are going to promote long-term comprehensive economic relations between economic entities on the basis of mutual understanding, respect and trust in accordance with their national legislations. Furthermore, acting within their competence, the ministries will promote an environment conducive to trade growth between their respective countries and cooperation in the field of entrepreneurship and establishing direct production ties as well as in other areas of mutual interest.

With the aim of encouraging trade relations between businesses, studying trade and investment opportunities, as well as exchanging experience on issues of mutual interest, the Azerbaijani and Russian sides intend to hold business forums, exhibitions and fairs, workshops, consultations and negotiations.

Russia and Azerbaijan can also set up a joint investment fund with the participation of the Russian Direct Investment Fund and the Azerbaijan Investment Company (AIC) to co-invest in mutually beneficial projects. "It is imperative to invest in those areas which stimulate the growth of mutual trade and investment, such as agriculture, food processing, logistics, transportation systems," Ulyukayev said.

A strategic objective of both countries is to bring the volume of bilateral trade to 4b dollars by 2016. According to Russian statistics, the volume of trade amounted to 3.6b dollars already by the end of last year, up by 5 per cent compared to 2012. In particular, Russia's exports to Azerbaijan increased to 2.9b dollars (up by 3.4 per cent) while Azerbaijan's exports to Russia increased to 636m dollars (up by 12.8 per cent). Admittedly, adding 400m dollars to the existing volume of bilateral trade over the next two years should be quite feasible given the current level of Azerbaijan-Russia economic relations. However, new points of contact contributing to the achievement of this goal need to be found.

In view of the Russian Minister, the main factors hindering the development of trade relations between the two countries are logistical constraints and shortcomings of the contractual legal framework. In this respect, both the Azerbaijani and Russian sides consider the implementation of projects on the construction of logistics centres in the two countries and the development of transhipments by road and rail transport as new areas of cooperation.

In expanding trade and economic relations, much will depend on the activities of individual companies and cooperation with Russia's regions. It should be noted that the Russian regions themselves are willing to establish contacts with Azerbaijani companies. The main areas of common interest are cooperation in the sphere of agriculture, construction and industry, including the creation of joint ventures.

For example, the Stavropol Territory is interested in establishing joint ventures with Azerbaijani companies that are involved in long-term storage and primary processing of agricultural products. During their visit to Azerbaijan in spring 2014, Stavropol's representatives made about a dozen proposals including joint development of the therapeutic resort complex, in particular the construction of health centres, import and export of agricultural products, as well as proposals for the development of animal husbandry and tourism. In turn, Azerbaijan is going to buy 1m tonnes of wheat and between 15,000 and 20,000 tonnes of high-yield seeds of cereal and legume crops in the Stavropol Territory of Russia.

It is expected that a new agreement will be signed with the Ulyanovsk region in June; cooperation priorities include innovation, industrial and agricultural projects, motorway services and logistics. Besides, Azerbaijan is interested in deliveries of engineering products from the Ulyanovsk region such as vehicles and their components, which are produced at enterprises in Ulyanovsk and Dimitrovgrad. The Russian side is also interested in the coming of large Azerbaijani construction companies to the region to assist with the implementation of the housing renovation programme and construction of hotels.

The Udmurt Republic [of Russia] offers Azerbaijan to set up joint ventures in the automotive and aerospace industries, information and communication technologies, and the production of modern building materials. Udmurtia also relies on Azerbaijani companies to be involved in creating new businesses, expanding the product range of its timber industry and developing a variety of agro-industries.

The Caspian Sheet Glass Plant based in Dagestan plans to annually supply to Azerbaijan about 100,000 tonnes of glass. In March 2014, the plant signed a memorandum of understanding with the biggest players on the Azerbaijani glass market - Glass House and Azer Glass.

The Leningrad region also intends to establish contacts with Azerbaijan and its representatives are going to visit Baku by the end of 2014. The visit is expected to result in the signing of a cooperation agreement. The supply of agricultural products and development of agriculture in general, tourism, culture and educational exchange seem to be the most likely areas of future cooperation between the region and Azerbaijan.

Azerbaijani companies consider the Russian market to be attractive for business too. For example, the Daimoni Shoe Making Factory is preparing to deliver its products to Ingushetia. In addition, the Matanat-A Company plans to build a dry construction material plant on the territory of the Tchistopol industrial estate in Tatarstan, while the AAC Company makes arrangements for supplying gas-concrete blocks for the construction of kindergartens in Ingushetia. Earlier, Azersun Holding established its business in the Krasnodar Territory.

To facilitate ties including business ties, Azerbaijan expands direct flight connections with Russia's regions. Since May 2014, Azerbaijan Airlines (AZAL) has increased the number of flights on the Baku-Moscow route to four flights per week and opened new flights to Kazan, Nizhniy Novgorod, Rostov-on-Don and Perm travelling twice a week. Furthermore, as of 22 June, AZAL will start operating regular flights on the Ganca-Mineralniye Vody-Ganca route, and as of 4 July, on the Baku-Krasnoyarsk-Baku route.

During Ulyukayev's visit, Azerbaijan, of course, was invited to join the Eurasian Economic Union (EAEU), which was set up by the presidents of Russia, Kazakhstan and Belarus who signed the relevant agreement at the end of May. "From my point of view, Azerbaijan's participation in these arrangements would be more logical and correct. Azerbaijan enjoys the advantages of CIS free trade regime. This mechanism works perfectly, and we should continue to move in this direction. The EAEU provides a free market not only for goods but also for services, investment, and labour force. This means business and labour protection," the Russian minister said.

He also noted that EAEU membership ensured a huge economic advantage. However, he added that there was a certain political issue.

Meanwhile, Mustafayev reiterated the position of the Azerbaijani leadership to develop cooperation with partners without entering into any alliance. "Azerbaijan does not consider the possibility of joining various associations, including the Eurasian Economic Union, because these projects include not only economic components but also political points" Mustafayev said.

The minister noted that Azerbaijan had no problems associated with the trade regime with Russia and added that favourable conditions were created for the development of economic cooperation between the two countries.

It should be noted that the official Baku maintains such relations with all other foreign economic partners, particularly with regional neighbours. Self-sufficiency of the country and balanced foreign policy of Azerbaijan make it possible to carry out a pragmatic course towards equal and mutually beneficial cooperation with almost all subjects of international economic relations. And the recent visit of the Russian delegation has only proved this point.