FROM TRADE TO INVESTMENT

In recent years, historical economic relations between Azerbaijan and Iran have stepped into a qualitatively new level, moving from traditional trade towards the implementation of joint railway and electric power projects, investments in the pharmaceutical industry, automobile manufacturing and agriculture. In this context, last year was the most remarkable year when a joint Azerbaijani-Iranian automobile plant was launched in the Neftchala Industrial Park. Recently, the businessmen of the two countries agreed to build two more enterprises in Azerbaijan for assembling buses and production of spare parts for cars.

Automobile business

Remarkably, the rise in bilateral trade relations was observed in 2018. Thus, according to the State Customs Committee of Azerbaijan, in 2018 the trade turnover with Iran increased by 74% ($446 million). In the medium term, Baku and Tehran are planning to increase this figure to $1 billion.

Given the existing untapped potential, the target is quite possible. During the 13th meeting of the intergovernmental commission on economic, trade and humanitarian sectors held in Baku in mid-March, Iranian Minister of Economic and Financial Affairs Farhad Dezhpasand noted that the two neighbouring countries intended to set up a joint trading company, as well as to cooperate in insurance industry. In the near future, it is also planned to create joint investment companies and funds.

In particular, the Minister of Economy of Azerbaijan Shahin Mustafayev noted the joint Azerbaijani-Iranian automobile plant operating in Azerbaijan. Since the mid-2018, the plant has produced more than 1,000 Khazar cars, most of which have already been sold. In general, it is planned to establish a serial assembly of eight models of cars at the automobile plant built by the Azerbaijani company AzerMash in partnership with the Iranian company Iran Khodro in the Neftchala Industrial Park. Currently, the company produces cars Khazar SD and Khazar LD. In the near future, Khazar Peugeot models will begin to roll off the assembly line. The annual design capacity of the plant is 10,000 cars. However, at the first stage it is planned to set up an assembly line producing about 6,000 cars including Iranian components.

The successful cooperation experience continued when the Azerbaijani and Iranian businessmen agreed on joint production of SCANIA buses in Azerbaijan. It is a new initiative of AzerMash, which has signed a memorandum of understanding with the Iranian company Qartal on the construction of a bus assembly plant in Hajigabul Industrial Park.

According to the head of AzerMash, Emin Akhundov, the new plant for the production of bus models of European and Asian manufacturers will provide permanent jobs for nearly a hundred people. According to preliminary data, it is planned to commission the enterprise by the end of 2020. At the first stage, the annual assembly capacity of the plant will be about 500 buses. Investments in the project will be 11 million manat, while the share of AzerMash in the project will be 25%. According to E. Akhundov, localization of the assembly of buses in Azerbaijan will help reduce final costs, while part of the buses produced in Hajigabul will be exported to neighbouring countries.

During the March business forum, AzerMash and the Iranian company Etihad signed a memorandum of understanding on the implementation of a joint project on the production of spare parts for automobiles. "The new plant will be located in the Neftchala Industrial Park. It is planned to invest ₼7 million in the construction of the plant. The share of AzerMash in the project will be 50%. The plant will provide jobs for 70 people," E. Akhundov said.

Interstate projects

Projects in the automotive industry are not the only investment initiatives jointly implemented by Tehran and Baku. Currently, about one thousand Iranian companies operate in Azerbaijan in various sectors, including services, trade, communications, industry, construction, banking and insurance services, and transportation. "Iran has invested more than $3.4 billion in Azerbaijani economy with $3.3 billion in the oil sector, $120 million in the non-oil sector," Mustafayev said.

Another promising area for joint operations may be agricultural production and processing projects. In particular, Baku and Tehran are reviewing a number of projects concerning joint large-scale agrarian enterprises in Azerbaijan for the production of food and industrial crops, which could be exported to third countries. This long-term vision is very attractive given the agreements concluded between Iran and Russia on the diversification of agricultural supplies and the creation of a "green" corridor.

At the same time, the governments of Azerbaijan and Iran actively work on the implementation of intergovernmental projects in the transport sector, particularly the infrastructure of the North-South International Transport Corridor (ITC). In recent years, the implementation of the project has gained new momentum. The corridor has been actively used by neighbouring states, including Russia.

"In 2017, 27 thousand tons of cargo were transported via the North-South ITC. Already in 2018, the corridor served ten times more cargo (287 thousand tons). Indicators of January-February 2019 suggest that the volume of cargo transportation in this direction will be at least 600 thousand tons in 2019," Javid Gurbanov, chairman of Azerbaijan Railways, said.

After the completion of construction works on all sections of the ITC, thanks to combined sea, rail and road freight, it will be possible to shorten the delivery of goods along the North-South route by more than twice - from 40 to 14 days. It is expected at full capacity, the route will serve the transportation of 6 million tons of cargo through the territory of Azerbaijan. In the future, this figure may double.

Cooperation between Iran and Azerbaijan in the electric power industry, in particular, the creation of the North-South energy corridor to unify the energy systems of Russia, Azerbaijan and Iran looks promising as well. Apparently, the process is entering the final stage. At the same time, Baku and Tehran are discussing the possibility of creating an Iranian-Azerbaijani-Turkish energy corridor, which will provide Azerbaijan with electric power during periods of shortage.

Baku and Tehran are also focused on the construction of hydropower plants and the development of hydro-potential of transboundary rivers. Thus, a meeting of the joint Iranian-Azerbaijani technical commission created for the continuation of the construction of hydropower plants and stations Khudaferin and Ghiz Galasy along the border river Araz was held recently at the Ministry of Energy of Azerbaijan. It is expected that the construction works end in 2020. By the way, the joint agreement indicates that the completion of the construction of hydropower stations, as well as the protection of water and energy resources for these stations will be provided by Iran until the restoration of the territorial integrity of Azerbaijan.

In a word, Azerbaijan and Iran continue developing strategically significant economic cooperation in all sectors.