Azerbaijan: Great opportunities for Western Investors
By Jayhun Mollazade, President of US-Azerbaijan Council

Over the past three years, oil investment in Azerbaijan has dramatically increased the influx of foreign capital while the country's position as an independent, internally stable sovereign state with its own foreign policy has solidified. $15 billion in oil investment in existing contracts will produce an estimated $120 billion in revenues over the next 30 years. For Azerbaijan's 7 million inhabitants, that level of investment will create an economy with an enormous demand for Western goods and services. This, along with the current privatization program for small, medium, and large state-owned enterprises, promise to make the next five to ten years a window of opportunity for foreign investment in Azerbaijan.

Oil is the main attraction for Western investors in Azerbaijan, a country which will play a key role in developing the Caspian Sea's hydrocarbon resources. Such international giants as AMOCO, Chevron, Exxon, Mobil, and British Petroleum are actively involved in Azerbaijani offshore oil projects. In mid-January, another production-sharing contract for exploration and development of the Lenkoran-Deniz oil field was signed in Paris between the State Oil Company of Azerbaijan (SOCAR) and French oil companies Elf and Total. Its signing coincided with President Aliyev's official visit to France at the invitation of President Jacques Chirac. While offshore oil exploration requires significant capital, medium and small-sized Western companies are beginning to explore opportunities in the smaller on-shore oil fields.

The experience of international development shows that one dollar in oil investment brings three to four dollars of investments in services, communication, and infrastructure in non-oil related sectors of the economy. There are excellent opportunities for Western businesses in telecommunication, real estate development, agriculture and food processing. Competition is becoming intense, and it will heat up after the first export shipment of oil, planned for August 28, 1997.

The International Monetary Fund's Board of Directors showed its support for the country by approving two credits for Azerbaijan totaling $219 million to back the government's 1996-99 economic program. Of this amount, $135 million is available under the Enhanced Structural Adjustment Facility (ESAF) and $84 million under the Extended Fund Facility (EFF). IMF Baku office director Mr. Yaprak noted that macroeconomic stability has been established in Azerbaijan, anti-inflation measures successful and strict monetary policy in place. Beginning in the second half of 1996, the rate of privatization accelerated, particularly in the privatization of small-size objects.

Azerbaijan has already secured more that $15 billion in oil investments, several times more than similar investments in the whole of Russia. The reason is simple: political stability and a government friendly to foreign investors. There still are some serious problems, such us unresolved conflict with Armenia, huge refugee population, social problems, which may hinder successful economic development. Yet the potential for $60 billion of additional service related investment remains. With other oil-related markets closed or politically anti-Western, Azerbaijan is one of the few places today to provide Western investors with long term opportunities. While higher risk means higher potential rewards, Azerbaijan has a good chance to become a second Kuwait in the next 10 to 15 years and bring a substantial return to those who are ready to invest now.

This article was provided by the U.S.-Azerbaijan Council in Washington, D.C., a partner organization of the ARCCI/AECC.