HUGE MISCALCULATION

The November 25 resolution of the French Senate calling for the recognition of the so called Daghlig Garabagh Republic and containing politically unacceptable demands that violate the international law caused the just resentment of the Azerbaijani society and a negative reaction from Baku. In the statement of the Milli Mejlis, which followed in response, the government of Azerbaijan was recommended to reconsider political and economic relations with France and take appropriate measures. In fact, the authorities may consider winding down bilateral business relations between the two countries. Moreover, according to the majority of experts, with the existing structure of trade and economic ties, France will suffer much greater losses than Azerbaijan.

Impact on interests

One can talk endlessly about the absurdity of the recent resolution and the political and business establishment closely linked to the powerful Armenian lobby behind the document. The absurdity of political statements on the recognition of the self-proclaimed Armenian separatist regime, legal nihilism embedded in every line of the resolution are so obvious that adequate politicians refuse to consider the document as a message for further steps at the international level. For example, the French Foreign Ministry, which once again confirmed the position of the French government, recognises Daghlig Garabagh as an integral part of Azerbaijan. It is also obvious that Russia, Great Britain, the US and other world powers remain committed to the principles of Realpolitik and are less inclined to such populist steps given the scale of losses in their foreign policy interests.

Although the decision of the French Senate is advisory, it is an undesirable precedent, since it may provoke negative processes that impede a peaceful resolution of the conflict on the basis of the trilateral ceasefire agreement reached between Moscow, Baku and Yerevan.

Azerbaijan's position on this issue is very clear: Baku will terminate all political and economic relations with any state that officially recognises the independence of Daghlig Garabagh. Accordingly, despite its advisory character, the resolution will still affect the Azerbaijani-French relations, in particular their economic component. Should the French government takes further undesirable steps, a complete curtailment of bilateral business cooperation is not ruled out.

“The resolution adopted by the French Senate on November 25 is a serious blow to the cooperation in political, economic, trade and other areas that has developed over many years between France and Azerbaijan, which is its main trade and economic partner in the South Caucasus. It hurts the interests of the French business circles in Azerbaijan, puts their future in question,” Azerbaijani Finance Minister Samir Sharifov said.

Lost millions

What did Paris risk in pursuing such an imprudent and unjust policy towards Baku? What losses can French business incur in the event of a deterioration in relations with Azerbaijan?

The structure of the Azerbaijani-French trade and economic relations assumes a great interest of Paris in expanding and maintaining these relations because a large portion French business in Azerbaijan is involved in the state-regulated energy sector, provides contracting services in the hydrocarbon sector, transport, infrastructure, water, environmental and other projects. In general, these projects do not target a relatively free consumer market, hence the contracts are implemented taking into account the interstate agreements and the orders from state-run companies. In other words, if the relations between Paris and Baku get worse, it can be assumed that the agreements with French companies will be terminated meaning that the French will lose their share in energy and transport projects. In 1995-2019, French companies invested $2.2 billion in the Azerbaijani economy, with $2 billion of this amount in the state-run oil sector and only $194.1 million in the non-oil sector mainly operated by private companies.

According to Vusal Gasimli, Executive Director of the Centre for Analysis of Economic Reforms and Communications (CAERC), Azerbaijan is the leader of the South Caucasus region in terms of the volume of French investments and the number of large companies participating in contracts, including large-scale and capital-intensive projects such as the development of the Absheron gas and condensate field, where SOCAR partners with the French Total with a 50% share. In addition, Total has a 5% share in the Baku-Tbilisi-Ceyhan oil pipeline project.

At the same time, French contractors are quite active in a number of other sectors, including industry, transport, construction, telecommunications, participating in the upgrade and reconstruction of refineries and a number of other capital-intensive projects. Thus, Azerbaijan Railways, Bakmetropoliten and other state-run companies concluded multimillion-dollar contracts with the French companies Alstom, Iveco, Systrain for the supply for electric locomotives, wagons and other equipment for the railway and underground transportation. In the aviation and space industry, French Airbus and Thales have also concluded quite significant agreements with Azerbaijani companies. Lactalis, Danone are active in agriculture and food industries, ACCOR – in the hotel business, and Societe Generale – in banking. In general, most of the large French companies operating in Azerbaijan in recent years have been contractors of about 35 projects financed from the state budget ($6.2 billion).

And there were plans...

Recently, Baku and Paris considered the possibility of a significant increase in investment potential and attracting French companies to new contracts in industry, science-intensive production, infrastructure projects in agriculture and tourism. At least the Movement of the Enterprises of France (MEDEF) and the Azerbaijan-France Chamber of Commerce and Industry had such plans. In response to the call of the Azerbaijani government to diversify the economy, MEDEF International has significantly stepped up its actions to develop the business of French companies in Azerbaijan’s non-oil sector.

One example is the French construction company SADE, which is contracting the construction of wastewater treatment plants in Shabran and Siyazan (over $70 million). In 2018, SADE was actively involved in the implementation of the Ağıllı Şəhər (Smart City) project and in land reclamation projects. Over the past ten years, the company has made considerable profits in Azerbaijan and planned to obtain new large contracts of the water operator Azersu OJSC for the construction of treatment facilities and water reservoirs in the regions, as well as to participate in the irrigation projects of the Ministry of Agriculture. However, today, given the outrageous policies of the French Senate, it is very difficult to predict how the activities of SADE and many other French contractors will develop if relations between our countries get worse.

We do not care

But what could be the losses of Azerbaijan, which has invested about $2.1 billion in the French economy over the past decades? One thing is clear that even in the worst-case scenario, the risks of Azerbaijan are significantly lower. First, the lion's share of Azerbaijani investments in France are in personal property, including mainly residential and partly commercial real estate (shops, restaurants, etc.). The capital of the Azerbaijani corporate industrial sector, and even more so of state-owned companies, is practically not represented on the French market. Moreover, local contractors are not involved in any projects in France. In other words, if any sanctions and restrictions are introduced against Azerbaijan, the losses for Azerbaijan will be minimal. Basically, the Azerbaijani trade business operates in France. If we look at the structure of exports, it is clear that the supplies of Azerbaijani agricultural products or the non-oil industry are relatively small. The main supplies are for petrochemical products and raw materials. Their sales on the world market does not meet any obstacles and is not limited to customs or other barriers, i.e. they can easily be redirected to other countries.

But the loss of the capacious Azerbaijani market with a population of 10 million for France is a much more sensitive problem. “Azerbaijan is the largest trade partner of France in the South Caucasus: two thirds of the total trade turnover of France in this region is from Azerbaijan. The total volume of trade between France and the other two South Caucasian countries (Armenia and Georgia) is two times less than the total trade turnover of France in Azerbaijan,” Vusal Gasimli said. According to the 2019 data, Azerbaijan's imports from France reached $251 million, while Armenia received French products worth $82.95 million, which is more than three times less.

Gasimli added that by the decision adopted under the influence of the Armenian lobby, the French Senate weakens the positions of its companies in Azerbaijan. In addition, the same senators receive salaries from taxes paid by French companies, which annually sell $250-300 million worth of products in the Azerbaijani market and participating in tenders for billions of dollars.

In a word, if necessary, Azerbaijan will easily compensate its losses by purchasing goods and technologies from other countries. But will France find an alternative to Azerbaijan's economic projects in the South Caucasus?