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Turkey - Azerbaijan : toward a brand new partnership ?

Monday 10 December 2007, by Onur Burçak Belli

One measure of the pace with which ex-Soviet Azerbaijan is changing is its ranking as No.1 worldwide in terms of economic growth. Its Gross Domestic Product (GDP) increased at a whopping 36 percent in the first eight months of 2007. According to many, if this dazzling growth, which owes much to soaring energy prices, continues, the country can well become the “Dubai of Central Asia.”

“It is like witnessing the regeneration of a country,” said Aydın Sezer, a Turkish businessman and economist working with an Azerbaijan construction company.
It has only been 15 years since Azerbaijan declared its independence and slowly adopted a Western-inspired market economy. The history of today’s fast development dates back to 2000, when oil started its unstoppable increase worldwide. The surge paid off as Azerbaijan’s economy grew by 26.4 percent in 2005 and 34.5 percent last year.

Turkish caution

Fast growth has enabled the Azeris to build their economy from scratch. Sezer compares the period he is now witnessing to the “wild capitalism” of the eighteenth century, and he criticizes Turkish entrepreneurs for their approach to Azerbaijan. “Our businessmen are seemingly unaware of the phases that capitalism went through, and they think capitalism came down from the sky at its present form,” he says. “Therefore they compare the business climate and infrastructure to the West. Thus, they think the country is insecure for investments.”

Despite this distorted image, Azerbaijan is fast becoming a secure oil supplier, basing its whole economy on oil and gas, attracting attention from foreign investors, while Turkish business still cautiously observes, losing precious opportunity.

The most pressing need for Azerbaijan is exchange of experience and expertise, Sezer argues, echoing many businessmen and economy experts. “Azerbaijan is desperately in need of expertise in nearly every area of the economy as it strives to take its part in globalization,” he says, noting also the country’s strategically important position as a gateway to Asia.

A pressing need

The problem, in a nutshell, is that Azerbaijan has rich energy and financial resources, but no trained human resources to match that capacity, no workforce able to undertake the nation’s transformation. Thus, the Baku government provides a lucrative climate for foreign investment.

For instance, tools and machines brought to the country for investment are exempt from customs taxes. Raw material and semi-finished products are also exempted, with the logic of developing sectors other than energy.

Rashad Rasullu, secretary-general of the Azerbaijan-Turkish Businessmen Union, draws attention to this climate and also low tax rates, cheap raw material opportunities and an inexpensive labor force. “Azerbaijan earns money very rapidly and grows very fast. However we do not know where and how to use this financial power,” he says. “We need to cooperate with our partners, especially in terms of technology and business experience.”

Rasullu warns that countries such as China, Turkey and Russia are rapidly losing the chance to rebuild the finance sector. The government declared two sectors as “privileged” and now prepares to implement attractive conditions for investors, particularly on information technologies and infrastructure construction. He also points out to another regulation that enhances foreign investment on facilitating company-founding processes. As of January 2008, any company, regardless of its nationality, will be able to found a company in one week with all legal processes completed and will be able to start working with simplified tax systems.

Haydar Babaev, the Economic Development Minister, also emphasizes the potential brought by economic growth. “Our country’s continuous development is based on investments and the refinement of these investments,” he says. “Since the foundation of independent Azerbaijan, the total inflow of foreign investment to our country has reached $30 billion.”

Close brothers

Turkey and Azerbaijan have always put great emphasis on bilateral relations, and both have gone so far as to adopt the slogans, “one nation, two states” and "friendship and indispensability’’.
Azerbaijan’s key location astride Central Asia, the Caucasus and the Caspian is a significant factor, which increases the importance of bilateral relations.

Yet, the basis of this close relationship is not only common ethnic roots and cultural similarities, but also economic and political developments in Azerbaijan.

Despite all its problems, Azerbaijan has a leading position in the area in regards to transforming into a Western-style democracy and market economy, while countries such as Uzbekistan or Turkmenistan struggle as relics of the past.

Although there is a continuous improvement in relations between Turkey and Azerbaijan, the process is somehow slowed due to Russia, which presses hard in order not to lose its influence in the region.
Still, it has not been difficult for Azerbaijan to find foreign partners and investors. Investment has been flowing into Azerbaijan with the expectation that oil revenues provides both stability and opportunity. Many investors from Italy, UK, Turkey, Russia and the United States have shown willingness to share their experiences with the country.

Gate to a new world

The reason of this interest is actually hidden in what Rasullu says while criticizing Turkish businesspeople: “It is true that our population is only eight million. And yes, about one million of Azerbaijan’s population consists of refugees. But Azerbaijan is a vast land, a blank paper. It is not only oil-rich but also a gate to all Caspian and the Caucasus. Turkish businessmen should keep this in mind.”
In the first eight months of 2007, Turkish-Azerbaijan trade volume reached $1.1 billion. This volume makes Turkey Azerbaijan’s biggest trading partner. But this growth owes much to the construction and operation of the Baku-Tbilisi-Ceyhan (BTC) pipeline. Thus, both Turkish and Azeri business circles in Baku agree that the figure is far from what it could be.

Criticizing Turkey

Both Azeri and Turkish businessmen here complain about what they believe to be a lack of enthusiasm on the Turkish government’s part in the pursuit of business ventures in Azerbaijan.
“Turkey should consider investing in Azerbaijan in a more comprehensive and professional way. Especially in terms of technology and experience we would like Turkey to make its presence felt strong,” says Rasullu.

With its 350 companies currently operating in the country, Turkey’s investment on sectors apart from energy is deeply-felt. The amount of foreign investment that is directly made by Turkish companies is about $600-800 million. This amount reaches up to $1.5-2 billion when Turkish investment of Azeri companies is added.
Still, the figures are “short of meeting the need and the potential,” says Bataçar Baysal, head of the Turkish Industrialists and Businessmen Union (TUSİAB),
Turkey has a 4.32 percent of share in exports and 7.68 percent of share in imports of Azerbaijan. Meanwhile, Azerbaijan constitues 3 percent of Turkey’s foreign trade volume.

Partial success

There was an expectation that some arrangements which were enacted in 2003, Turkish citizens’ being considered equal with Azerbaijani citizens in the country and vice-versa would further enliven economic relations. The two sides partly reaped the fruits of these arrangements in 2004. The real “leap forward” in economic relations took place in 2005, when the BTC pipeline and the Baku-Tbilisi-Erzurum (BTE) pipeline were realized.

But still, Turkey is not perceived as taking Azerbaijan seriously enough. Despite Abdullah Gül made his third visit as the Turkish president to Azerbaijan, Azeri businesspeople seem cautious.
It was disappointing for Azeri businessmen that President Gül brought mainly the representatives of Small and Medium Enterprises (SME) with him and not representatives from the finance sector, says Aydın Sezer: “Turkey should start considering Azerbaijan as a serious economic partner and think of financial entrepreneurship in the country professionally. Turkey should keep in mind that this country is a great opportunity and it look’s into Turkey’s eyes for help.”

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Sources

Source : Tuesday, November 27, 2007 TDN

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