FROM TRADE TO INVESTMENTS

Over the last year Azerbaijan and the Russian Federation have been going through another phase in boosting interstate and economic ties. Moreover, alongside the growth inthe country's mutual trade, the volume of mutual investments has sharply increased and a readiness is being expressed to participate in a number of joint regional projects. The 14th session of the Russian Intergovernmental commission held in Baku has been yet another confirmation of this ongoing trend.

The sound economic foundation which has taken shape over the last 15 years forms the basis of the strategic relations between Moscow and Baku. Over this period the trade turnover between the countries has dynamically increased. According to data from Azerbaijan's State Customs Committee, it grew more than 10 per cent in 2013, to 2.6bn dollars. In the first half of 2014 volumes of bilateral trade had reached 923m dollars. It is noteworthy that Russia is among the first five trade partners in Azerbaijan's foreign trade balance and is the third largest importer of Azerbaijani goods. More than 500 enterprises and organisations belonging to more than 70 Russian subjects are involved in foreign trade activity with Azerbaijan. The number of them is growing dynamically, and in the next few years both countries are planning to boost their mutual trade turnover to 4bn dollars.

The markedly increased intergovernmental and business contacts since the beginning of this year demonstrate the two states' mutual interest in expanding their co-operationever more clearly. In the last few months alone, the ministers of the economy and tourism, the speakers of the parliament and spokesmen for the foreign ministry and the heads of a number of other departments in the two countries have visited Baku and Moscow. The fifth "Inter-regional Co-operation: New Opportunities for Growth" Azerbaijan-Russian forum held in Qabala at the end of June also signalled a breakthrough. The chief result of these meetings was the collation of the stands taken by Moscow and Baku and the mutual striving of the governments to promote the political and economic co-operation to a qualitatively new level.

The 14th session of the Azerbaijan-Russian intergovernmental economic co-operation commission has consolidated this evident trend. It is noteworthy that the last time the commission held a session in Moscow it was on 18 March 2011, and now after a three year interval it has renewed its activity. The co-chairmen, Russian Deputy Prime Minister Dmitriy Rogozin and Azerbaijan's First Deputy Prime Minister Yaqub Eyyubov discussed the new agenda during the meeting in the Russian capital in August this year.

The issue of ensuring Russia's food security was among the key points on the agenda at the Baku meeting. There is a great need to replace the imports of foodstuffs and other goods which are on the so-called list of sanctions," Deputy Prime Minister Dmitriy Rogozin stated at the sitting of the bilateral intergovernmental commission. "Our priority task is to ensure that the commodities' markets are well balanced in order to prevent an excessive rise in food prices; this does moreoverapply to the markets in both our states. You see, an excessive demand for Azerbaijan's agricultural produce on the Russian market may lead to a rise in prices in your own country."

At the same time, the head of the Russian delegation noted the substantial possibilities for markedly increasing deliveries of Azerbaijani agricultural produce to the Russian market. "From this point of view, today we have already presented to the Azerbaijani government a number of projects relating to transportation logistics, processing and storage of agricultural produce for a city like Moscow for example," D. Rogozin said, "Successful experience in delivering fruit and vegetables to Moscow may be applied to other Russian urban agglomerations."

By the way, the confrontation between Russia and Europe, the USA and other states "involving sanctions" has already affected the growth in deliveries of agricultural produce from a number of southern republics of the CIS [Commonwealth of Independent States], It is no secret that fresh fruit and vegetables, canned and bottled foods, wines and so forth account for a considerable part of these deliveries. Therefore the most promising plans for Azerbaijan's agricultural industry today are linked to the possible opening of a network of national agricultural distribution centres in Russia. Judging by the results of the recent talks in Baku, on the whole the Russian government has supported the idea of such centres being set up in Moscow, St. Petersburg and other regions of the Russian Federation.

It is noteworthy that the agricultural enterprises in Azerbaijan are already mastering a new form of export activity, namely the large-scale delivery of agricultural produce on long-term contracts. What we are talking about is the project, implemented with the support of the ???Azerbaijani Fund for Incentives for Exports, Investments and Private Investors, to set up a major overseas agricultural produce distribution centre; this was opened in the Kazakh port of Aktau in spring this year. This project is aimed at supplying "green grocery" produce from Azerbaijani farms to the north-eastern regions of Kazakhstan. The construction of three staging distribution centreshas started on the Absheron peninsula. These are scheduled to process 110,000 tonnes of agricultural produce, for the purpose of ensuring constant large-scale exports to Russia and other neighbouring countries.

An equally important subject discussed at the 14th session of the intergovernmental commission was aspects of energy-related co-operation and also the setting up of a high level working groupto co-ordinate the combined activity in the energy fields. In particular, the ministries of energy of Azerbaijan and Russia have discussed aspects of the co-ordination between the Open Joint-Stock Company [OJSC] "Inter RAO", "CO UES", "FCG UES" and the OJSC "Azerenerji" to boost the efficiency of the parallel operation of the two countries' energy grids, the agreement-based supply of electricity and also the rendering of state support regarding this issue.

Co-ordinating the working of the two states' energy grids is an extremely pressing matter, especially in the light of a number of other promising projects, presupposing the transit of electricity to Iran and a number of other contiguous states. The energy ministries in Baku, Moscow and Tehran have had talks on expanding the energy exchange and development of energy transit in previous years. But it was not until June last year that they really managed to speed up this promising undertaking, when an intergovernmental agreement was signed in Volgograd on measures to provide for the parallel operation of the unified energy grid of the  Russian Federation and Azerbaijan's power grid. Moreover, there are no serious technical impediments to the realisation of this project since the energy grids of Azerbaijan and Russia have long been linked by two power transmission lines - the "Derbent" (330 kilowatts) and "Yalama" (110 kilowatts).  In its turn, the energy exchange between Azerbaijan and Iran is also being implemented through five high-voltage power transmission lines.

Aspects of drawing up the intergovernmental agreements on quarantining plants, on customs' monitoring of the supplies along the power transmission lines and pipelines, on marine transport, on Azerbaijani shipping on the Russian Federation's internal waterways, on tourism and on migration of labour were also discussed during the session of the intergovernmental commission. Another quite important result of the intergovernmental commission sitting was the signing of an intergovernmental agreement on setting up an exhibition and trade centre on the territory of the All-Russia Exhibition Centre in Moscow.

The participants in the intergovernmental commission had their sights on the investment sphere as well. "The testing times that the Russian economy is going through today as a result of certain political events, are in fact making our countries close ranks. Within the framework of the import-replacement policy, Azerbaijan's produce is reaching Russian markets where it is called for. Moreover, today the time has come to set up joint enterprises to process agricultural produce in a number of ways," Russian Deputy Prime Minister Dmitriy Rogozin noted in his speech.

Over the last few years incidentally entrepreneurs in the two states have been showing a genuine interest in the mutual capitalisation of the economies. Thus, something like 570 companies are operating in Azerbaijan with the involvement of Russian capital, and the volume of investments in Azerbaijan's economy has reached 628m dollars. In its turn, Azerbaijan's investments in Russia over the last few years has exceeded the sum of 1bn dollars. But these figures do not full reflect the available potential. Therefore the governments of the two countries intend to apply maximum efforts to develop the components ofinvestments.

To all appearances, these efforts are being converted into completely realistic projects. In particular, the 14th sitting of the intergovernmental commission resulted in an accord on the possible organisation of jointly assembling Russian "Rostselmash" combine harvesters for harvesting grain and fodder on the basis of machine-building enterprises in Azerbaijan. "The possibility of setting up a joint enterprise to assemble our combines in Azerbaijan has been examined since the summer this year. "Rostselmash" could deliver sets of machinery for assembling various designations of equipment, especially as we have mutual experience with Kazakhstan in getting this type of co-operation going,"the deputy financial director of OJSC "Rostselmash", Aleksandr Tokmakov, stated recently. 

The deputy director said that at the present time the Azerbaijani side has to decide on the location of the future joint enterprise. Moreover, it is not to be ruled out that it might not be just one machine-building plant, but several, so that in the future, within the framework of the localisation programme, the imports of parts from Russia can be cut down and the production of them got going on the spot. In the event of this issue being decided positively, it will already be possible to get the assembly of combine harvesters going in Azerbaijan by the summer of 2015.