BUSINESS TRENDS

Business integration with Türkiye, China, Central Asian republics (CA) and other Muslim states of the region has become a strategic vector of Azerbaijan's foreign economic relations and diversification policy in recent years. At the same time, Azerbaijan regards strengthening ties with the member states of the Economic Cooperation Organisation (ECO) as an important tool of cooperation, considering partnership with the organisation in the key regional projects. Participants of the 16th ECO summit held recently in Tashkent discussed the prospects for joint implementation of transport projects, attracting investments in industry, green energy, etc.

West to East

Over the past decades, Türkiye and European countries have been the main market for hydrocarbons, fuels, petrochemical products and electricity - Azerbaijan's key export commodities. Billions of dollars have been invested for the development of multi-faceted transport communications and pipeline projects for the West, including the purchase of ships and railway trains, the upgrade of railways and motorways, the establishment of trading companies, swap and other mechanisms for trading oil and gas. The transport and logistics potential created in Azerbaijan has been intensively used by the Caspian states, primarily Kazakhstan and Turkmenistan, mainly for the transit of crude oil and refined products.

These stable trends began to change during the energy crisis of 2014-2018. In contrast with sharp decline in commodity prices and cheaper transit tariffs for shipment through the Caspian, there was a tangible increase in demand for the delivery of non-oil cargoes, including multimodal container transportation. Therefore, Kazakhstan, Azerbaijan, Georgia and Türkiye launched the Trans-Caspian International Transport Route (TCITR) at the end of 2018, as well as the Lapis Lazuli Corridor (Lazuli Corridor) connecting the Caspian ports of Turkmenbashi and Alat, which became operational the following year. Beijing and Ankara began to use TCITR quite intensively. In the post-pandemic period, Türkiye, Azerbaijan and Central Asian countries began to promote transport, energy, trade and investment cooperation under the Organisation of Turkic States (OTS) and in other regional formats. The outbreak of the Russian-Ukrainian war led to a major geopolitical division in Eurasia, making the Caspian countries focus more on the development of the Middle Transport Corridor, a project supported by both the EU, China and the OSCE.

In fact, all these factors encouraged the ECO to get increasingly involved in joint business projects.

Being a full member of the ECO for over 31 years, Azerbaijan chaired the organisation in 2023 under the motto Green Transition and Mutual Connections. Activities initiated by Azerbaijan have greatly contributed to the partnership with the organisation. "Azerbaijan has been an active member of the ECO. We want to further expand bilateral and multilateral cooperation with the member states of the organisation. We are ready to host the next, 17th ECO summit. In recent years, we have invested billions of dollars in our transport infrastructure, becoming one of the key transport and logistics hubs in Eurasia along the East-West and North-South transport corridors. This infrastructure is now available to other ECO members. The construction of the Azerbaijani sections of both corridors has already been completed. Currently, we are expanding the capacity of the railways running along these corridors," President Ilham Aliyev said at the 16th ECO Summit in Tashkent.

Transit routes as a priority

One of the topics of discussion during the summit was the prospects of Azerbaijani-Iranian co-operation on the infrastructure of the Zangezur transport corridor. "For three years after the Second Garabagh War, Armenia has refused to fulfil its obligations, that is to provide a passage from mainland Azerbaijan to Nakhchivan. This is their choice. I think they have made a big mistake," Ilham Aliyev said, expressing his satisfaction with the joint work of Iranian and Azerbaijani representatives to agree on the route of railway and road lanes along the southern bank of the Araz River. President Aliyev believes that this project will be implemented in a short time and will become another direction of the North-South transport corridor. In the future, Azerbaijan will have two transport routes - through Astara and Aghbend, and both will be accessible to Azerbaijan's regional neighbours and partners.

All participants of the summit noted the available potential for joint projects in various areas, including energy, industry, investment, transport, humanitarian aid, tourism, etc.

"The economies of the ECO member states demonstrate sustainable development rates. During its chairmanship, Baku has launched a number of significant initiatives and made a serious contribution to the organisation's activities," Uzbek President Shavkat Mirziyoyev said at the opening of the summit in Tashkent. Underlining the importance of expanding economic cooperation among ECO member states, he emphasised the significance of launching multimodal transport corridors and signing an agreement on trade facilitation.

In addition to signing a comprehensive trade agreement, unified rules will be adopted to simplify cross-border procedures, harmonise transport standards, and apply flexible tariff and customs policies. Baku and Astana have been working in this direction for several years, including the development of large multimodal logistics hubs along the transport routes of the Middle Corridor. According to President Mirziyoyev, Uzbekistan, Azerbaijan and Türkiye have established a single digital database on cargo transportation, and similar projects will also be implemented with other member states of the organisation.

Turkish President Recep Tayyip Erdogan expressed a similar view on the priority of transport integration during the summit. "We discussed many issues at the summit, including the need to improve intra-regional trade, eliminate problems with supply chains, and strengthen transport links between our countries. We should immediately conclude a trade agreement under the ECO. As to the development of trade relations, joint support for multilateral transport corridors, especially the East-West (Middle Corridor) development, is very important," Erdogan said.

Considerable attention was also paid to the issues of increasing mutual investments, expanding institutional and financial potential of the Istanbul-based Ecobank, and co-operation in the tourism sector.

The ECO members' efforts to expand transport communications and regional trade are particularly relevant as they are Azerbaijan's largest trading partners and provide, among other things, revenue to the state budget. Moreover, in 2023 and subsequent years, trade, investment and transport co-operation will be on the rise, both due to the growth of energy supplies to Europe and the expansion of transit of non-oil products. Kazakhstan, Azerbaijan, Georgia and Türkiye together with their EU partners plan to invest several billion dollars in the TCITR infrastructure, expecting to increase the capacity of the Middle Corridor to 10 million tonnes of cargo by 2025-2026.

Green perspectives

Another crucial area of co-operation discussed at the summit was the development of green energy. "Over the past twenty years, over $310 billion has been invested in Azerbaijan's economy, of which about $200 billion has been invested in the non-energy sector. This is the result of a favourable investment climate in our country. Despite Azerbaijan's rich oil and gas resources, we pay special attention to the development of the renewable energy sector: Azerbaijan's renewable energy potential is 37 GW of onshore wind and solar energy and 157 GW of wind energy in the Azerbaijani sector of the Caspian Sea. In the near future Azerbaijan will become a potential exporter of green energy, including hydrogen energy," Ilham Aliyev said. He noted that Azerbaijan has been officially approved as a country where the ECO Clean Energy Centre will be located and the Regional Electricity Market will be established.

The development of renewable energy sources (RES) attracts close attention of the ECO member states. Especially since the creation of a green energy zone in Garabagh, as well as the development of industrial, agrarian and other production clusters in the region with active use of alternative energy. According to the President of Azerbaijan, in 2021-2023,  hydroelectric power plants with a total capacity of 170 MW were commissioned in the liberated economic regions of Garabagh and Eastern Zangezur. By the end of 2024, this indicator will reach 270 MW. In a few years, the total capacity of small HPPs alone in the liberated territories will reach 500 MW.

Azerbaijan welcomes the participation of its allies and regional partners in contracting and investment projects in the liberated territories. The involvement of ECO member states in the RES sector is a particularly attractive area. Türkiye is the leader here, with its companies involved in the majority of road construction works and development of agricultural-industrial clusters and green economy. Hundreds of companies from Kazakhstan, Pakistan, Uzbekistan are planning to participate in these projects, as the Azerbaijani Ministry of Economy  is reviewing their applications.