FROM STABLE TO POSITIVE

Everyone knows that investors everywhere prefer to invest in economically and politically stable countries.  No one questions now that Azerbaijan features both of these factors, providing a solid guarantee for foreign investors.  This is the most important component of our country's integration into the international economic community.

The very fact that Azerbaijan has managed to maintain its investment rating both during the global crisis and in the post-crisis period, while many countries faced downgraded credit ratings, is in itself proof of the economy's stability.  For example, on 8 March Moody's Investors Service rating agency revised its forecasts for Azerbaijan's Ba1 rating from 'stable' to 'positive', citing improvements in the country's financial sector against the backdrop of rising oil prices and prudential management of the revenues.  Let us note that the country's main advantages when ratings are assigned are its considerable reserves of natural resources and low levels of domestic and foreign debt. The government's ongoing efforts to boost investment in the non-oil sector also helped to improve the credit rating.  From the Finance Ministry's perspective, the upgraded credit rating will increase the country's opportunities to enter international capital markets.

Ultimately, all this will certainly have a positive effect on the country's attractiveness for investment, and this will foster stable development.  In March, representatives of big business from many countries were in Baku to discuss many specific issues concerning additional capital investment into Azerbaijan.

Concrete projects

So, 50 foreign investors from countries like Germany, Spain, France, the UAE, Britain and Hong Kong arrived in Baku in early spring to take part in the two-day investment summit, which, in the opinion of Adil Mammadov, president of AZPROMO (the Azerbaijan Foundation for the Promotion of Exports and Investment), proves that all conditions are in place here for foreign investment operations.

A broad spectrum of issues was discussed during the summit - beginning with investment and business opportunities in the South Caucasus and the Caspian region, banking and financial services, alternative energy markets, the principal business opportunities in agriculture and the manufacture of food products; ending with the attraction of more direct foreign investment into the telecommunications and information technology sectors and financing and investing in the Azerbaijani infrastructure boom.

Bearing in mind that rapid development continues in Azerbaijan, the government's priorities include further consolidation of Azerbaijan's role as a supplier of energy, improvements to the infrastructure, job creation, development of the non-oil sector of the economy and the maintenance of stability and prosperity in the region.  This form of development and policy create new opportunities for foreign investment and greater interest in the region.

After the discussion, participants noted great interest from foreign investors, mainly in the agricultural, food, construction and financial sectors and the potential for alternative sources of energy.

In particular, Mark Beckmann, deputy director of the German Technical Cooperation Agency, GTZ ,in Azerbaijan, suggested that foreign investors should consider the investment opportunities in Azerbaijan's agriculture sector.  He said that agriculture is developing at a fast pace in the country, demonstrating in recent years stable average annual growth of about 4% on average.  The GTZ official believes that Azerbaijan has advantageous investment opportunities, small foreign debts and large strategic currency reserves, which aid the country's macroeconomic stability, boosting its investment appeal.

Another participant in the summit, Keith Simmons, USAID coordinator in Azerbaijan, argues that one of the most promising sectors of the economy for foreign investors is dairy cattle farming.  At present, 20% of domestic demand for milk is covered by imports.  "On average, a cow produces 1,154 litres of milk a year, which is much lower than we have in European countries.  For example, in the Netherlands, the average milk yield from one cow is 8,000 litres a year.  If you add the potential for exporting local milk to the EU and USA, it is clear that this sector of agriculture has huge growth potential and is attractive for foreign investors.  At the same time, greater productivity in the dairy cattle farming sector can be achieved by improving the quality of fodder, introducing tighter control monitoring systems, importing more productive breeds of cattle and raising the quality of management at farms.  In addition, the milk processing sector also needs investment", said Simmons.

Participants in the summit showed great interest in renewable sources of energy.  Gabriel Lanski , vice president of the Austrian-Azerbaijani Chamber of Commerce said that "at present we are holding negotiations on possible involvement by Austrian companies in the process of developing the renewable energy sector in Azerbaijan."  Alternative and renewable sources of energy currently account for up to 30% of total electricity generation in Austria.  Austrian companies hope that their experience in this field will be valuable and useful in Azerbaijan.

Azerbaijan has the potential to develop alternative energy sources because it has renewable sources such as the sun, wind and geothermal reservoirs.  To promote development in this sector, the State Agency for Alternative and Renewable Energy Resources at the Azerbaijani Ministry of Industry and Energy has begun to implement several pilot projects to attract foreign investment.  During the summit, Camil Malikov, deputy chairman of the agency, voiced his hope that it would create an electronic register.  "The cost of wind energy is cheaper than that generated by any other source, so this will see much development in the next five years in Azerbaijan", he said.  According to preliminary studies, up to 100 alternative energy generators are to be built in Azerbaijan within the next five years.

The Tretiy Rim investment company also has a keen interest in Azerbaijan.  Senior partner Yevgeniy Kogan, believes that Azerbaijan is very attractive for investors and, in addition, the country is much more credible in terms of risk than it appears from a distance, because some groundwork has already been laid.  The company appreciates the great prospects for introducing different financial instruments to the country's stock markets.  "I do not think that a major stock market of the type you see in Russia or London will be created here in the near future - simply, that is a long process, but it is certain that companies here need foreign investment and they are able to meet their liabilities easily enough.  Perhaps the potential trading of Azerbaijani company stocks or convertible bonds in developed financial markets is a possible future way to attract investment here", Kogan said.

Attractive environment

It seems that there are enough projects across the board to attract investors to Azerbaijan.  In addition, the country is in the process of accession to the WTO, and membership of that organization will further expand the opportunities for foreign investors and promote international integration.

However, Azerbaijan is already well-integrated into the international economy, and the fact that US$95 billion of investments have been made into the Azerbaijani economy in the last 15 years, of which $52 billion were foreign investments, proves this.  More than 36% of foreign investments were direct, which indicates a favourable investment climate in the country, stressed AZPROMO President Adil Mammadov.

Deputy Economic Development Minister Niyazi Safarov argues that events like the Azerbaijani investment summit will act as evidence of the favourable investment environment in the country and help to fully inform the investors who take part in the event about the trends in economic development.

"The Azerbaijani government is working hard today to supply more information to the international community about the economic situation in the country, its advantages and potential and its ability to be a reliable partner.  According to World Bank forecasts, Azerbaijan will become a net foreign investor in the medium term.  The currency reserves are three times the minimum required to hit this target, and this is the main evidence of the country's macroeconomic stability in the context of the consequences of the global crisis," stated the deputy minister.

In his words, Azerbaijan has been granted a quantitatively new international status, as it has moved from the class of low-income states to become a medium-income country.  Strategic currency reserves are three times the foreign debt, and this is one of the main indicators of the country's macroeconomic stability in the context of the consequences of the global crisis.  This will certainly result in a rise in investment into the country and further strengthen the economic power of the state.