The year 2020 also led to a drop in GDP in Azerbaijan as a result of the covid-19 pandemic and a drop in oil prices on world markets. For the further development of the country, it will be essential if it is able to take advantage of the great successes it achieved at the end of 2020 – the victory over Armenia in the 2nd Karabakh War and the full operation of the Southern Gas Corridor.
The restoration of Baku’s control over most of the occupied territories will enable their development in the coming years, in which foreign investors will also participate, while the possible restoration of transport and infrastructure connections with Armenia would help build Azerbaijan’s position as a transport hub.
A sword of Damocles hangs over the cautiously optimistic economic outlook in the form of volatile oil prices; the oil sector continues to account for around 90% of exports and the majority of state budget revenues.
The aim of the medium-term economic strategy for the period following the last crisis, reflected in the government’s Action Plan of April 4, 2020, is to stimulate domestic production and consumption. Even in connection with the restoration of the previously occupied territories, hopes are pinned on the development of the agrarian sector, the construction industry and building the position of a transport-logistics hub, where, however, efforts to build a North-South corridor are still running into US anti-Iranian sanctions and another from Baku through Armenia to Nakhchivan the absence of a peace treaty.
Privatization of some state enterprises can be expected. In the early stages of the crisis, Azerbaijan relied on reserves from fatter years accumulated in the State Oil Fund, which are getting thinner along with Central Bank reserves as a result of maintaining the exchange rate of the national currency against the dollar. It has been fixed since 2016, when the manat lost half of its original value after a double-jump devaluation.
In their upcoming steps, the Azerbaijani government and the Central Bank must weigh, on the one hand, the social effect of a possible unpopular devaluation of the manat, and on the other hand, the consequences of accepting obligations associated with foreign loans.
In connection with the crisis, when the collapse of some banking houses in 2020 deepened concerns about the stability of the banking sector, the government embarked on the path of subsidizing bank loans and extending the validity of the state guarantee of bank deposits.
Post- COVID -19 opportunities for foreign exporters
Transport industry and infrastructure
According to allcountrylist, Azerbaijan considers the tripartite agreements concluded with Armenia and Russia following the 2nd Karabakh War from autumn 2020 as the basis for building railway and road corridors connecting the core of its territory by the shortest route with the Nakhchivan exclave and further with Yerevan and Turkish and Iranian territory.
After the successful construction of the Baku-Tbilisi-Kars railway corridor, which was connected with the largest Czech investment project in the country to date, Azerbaijan would also benefit from the construction of of the North-South corridor.
Czech companies can also apply for the planned expansion of the national railway network and the Baku metro. The development of infrastructure, including the renewal of the road network, the solution to the complex traffic situation in large cities and the modernization of airports, is also linked to opportunities for Czech entities. The Czech Republic can offer buses, trucks and specialized construction machinery, as well as technological solutions that can be used in the development of “smart cities”.
Azerbaijan is a key supplier of oil and natural gas to a number of countries in Europe and the Mediterranean; local oil covers, among other things, a full quarter of Czech consumption. The domestic production of electricity is based mainly on natural gas, in the field of renewable sources, investors from Saudi Arabia and the United Arab Emirates have recently made their mark here.
The production of the state oil and gas company SOCAR includes, in addition to energy raw materials, a concentrated chemical industry in the city of Sumgait, including the production of polymers and production for the needs of the health sector. Regarding direct supplies to SOCAR, strong competition from global petrochemical companies must be taken into account; opportunities for Czech companies are offered in the area of overhauls of existing equipment, which are several times cheaper than new products.
The expansion and modernization of the electrical transmission system includes the construction of new high and very high voltage lines, transformer stations and power plants. It is also planned to increase the electricity production capacity associated with the liberalization of the domestic electricity market, which should allow the involvement of independent producers for the first time in the history of Azerbaijan.
In the near future, Azerbaijan will also be forced to address the issue of reliable security of electricity and gas supplies in large areas where it regained its control in the fall of 2020 after years of occupation, and to remote mountainous areas. Another area where Czech business entities could find application are technologies for increasing the efficiency of energy use in industrial operations, public buildings and households.
The priorities of socio-economic development until 2030 announced by the President of Azerbaijan include, in addition to the diversification of the economy dependent on oil and gas production with their volatile prices and demand, as well as greater use of renewable energy sources, where the country will be able to rely on extensive reclaimed territories. Revolutionary changes in the field of electricity production in Azerbaijan bring a number of opportunities for Czech companies that have experience in the construction and operation of hydro, wind and solar power plants.
The construction industry is quite a proven “lifeline” of the Azerbaijani economy after the oil crises. The government is also betting on them in connection with the restoration of recaptured territories, which are to be repopulated by a large population of internally displaced persons after demining.
Modern residential complexes for the rapidly growing population of the Baku agglomeration are being built on brownfields, including places where environmentally unfriendly oil extraction took its toll. All of this also means an opportunity for companies dealing with land remediation, landscape design and stabilization building modifications.
Safety (e.g. fire protection) and construction technologies, 3D building models and other innovative technical solutions developed by the Czech research sphere may be of interest to Azerbaijani construction companies and developers.
Agricultural and food industry
In its plans for economic diversification, the Azerbaijani government considers the agrarian sector to be one of the most promising. The main agricultural crops are cotton, tobacco and tea, but the traditional areas of specialization also include animal husbandry, viticulture and horticulture, and the cultivation of vegetables and subtropical fruits is also very developed.
The interest is in joint production enterprises, agricultural machinery, technologies for processing agricultural production as well as equipment for processing animal waste into granular fertilizer, or in the construction of small biogas stations; supplies of small breweries and related equipment also have potential.
Development plans for the Baku Agropark complex, which is one of the most modern agricultural enterprises in the region and exports its production to other post-Soviet and European countries, include the expansion of the greenhouse area, which provides an opportunity to apply new technologies and innovative technical solutions from the Czech Republic. The interest of Azerbaijani farmers in technology also stems from the specifics of the mountain terrain.
The uncertainty resulting from the threat of restrictive measures by the state authorities of the Russian Federation, which is the main outlet for the export of Azerbaijani agricultural products, motivates local exporters and importers to look for new partners, among which Czech companies may also be.
The drought of recent years has highlighted the interest of the Azerbaijani government in investments in water management, which creates opportunities for Czech solutions in the field of irrigation and pond farming, as well as cleaning water and contaminated soils.
Embassy of the Czech Republic in Baku
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