Azerbaijan Seeks New Partners to Diversify its Economy

On March 19, during the launch of construction works for the large shipbuilding factory in the outskirts of Baku, President Ilham Aliyev announced: “At the moment, in Azerbaijan, we are conducting a policy of large-scale industrialization” (Azertaj news agency). As he made the statement, he stood alongside Singapore’s Foreign Minister, George Yong-Boon Yeo, a rather unique guest in the Azerbaijani capital. For a long time, Azerbaijan has been developing broad economic relations with the US, Israel, and the EU, but this visit by a senior East Asian official seems to have opened a new era in relations between Azerbaijan and this dynamically growing part of the world. It is not a coincidence that one week prior to this visit, Azerbaijan’s Minister of Emergency Situations, Kamaleddin Heydarov, visited several East Asian countries, including Indonesia, Malaysia and Singapore, discussing ways to expand bilateral relations (APA News Agency, March 12).

President Aliyev remarked during the same opening ceremony that the “development of a non-oil economy carries vital importance for the country” (www.day.az, March 20). This is where the involvement of Asian countries and companies will prove most useful for Azerbaijan. Singaporean company, Keppel Offshore & Marine, holds a 10 percent share in the shipbuilding project, while the State Oil Company of Azerbaijan has 65 percent and the State Investment Company of Azerbaijan another 25 percent. The factory is planned to supply the growing demand of the Azerbaijani State Shipping Company with tankers and other ships (in the past six years the company has purchased ten new tankers and several ships from abroad), as well as provide these products for export, thus significantly boosting the non-oil export potential of the country. Overall, the factory will have the capacity to produce 25 thousand tons of metal products, repair 80-100 ships and build four new tankers each year. It is also planned that the shipbuilding factory will help to boost Azerbaijan’s capacity as a transit country for Central Asian crude oil and oil products via the Caspian Sea. One week before the opening of the new factory, President Aliyev also inaugurated a new sea port in Zikh village of Baku.

The rapid growth of Azerbaijan’s economy, despite the global financial crisis, allows the country’s leadership to think strategically, and boost its standing in the wider regional economy. Speaking at the March 13 conference in Baku about the socio-economic development of the regions of Azerbaijan, President Aliyev called upon Azeri embassies abroad and Azeri companies to work together to seek new export markets. “The foreign ministry and the ministry of economic development must work together to create additional opportunities for local entrepreneurs to enter foreign markets. So far, we did not possess such products for export. Now we produce goods of high quality. The giant industrial factories that we are building will be operational in two or three years. This strategy will ensure sustainable development of our country,” Aliyev concluded (Azertaj News Agency).

Indeed, Azerbaijan has proven successful over the past decade in expanding its energy sector and laying the foundation for its rapid economic growth. Yet, concerns are mounting among the leadership of the country that reliance on energy will limit the economic development capacity of the country and might render it vulnerable to fluctuations in oil prices on foreign markets. Thus, the diversification of the economy is seen as a key priority for the next decade.

In this regard, the experience of East Asian countries, particularly in the field of construction, technology, telecommunications and other sectors, are of significant interest for Azerbaijan. In the past few years, a dramatic rise in the activity of South Korean and Chinese companies has occurred in Baku. They are often contracted by state and non-state companies to build roads, supply agricultural equipment and technology, provide telecommunications services, as well as developing aging or abandoned oil fields. Baku, in turn, has opened embassies in South Korea, India, Japan, Indonesia, and Malaysia in the past few years, while the embassy in China has been functioning since the early 1990’s.

These past developments do not indicate a substantial shift in the foreign economic policy of the country. EU countries remain a priority, as the recent visit to Baku by the Romanian Foreign Minister demonstrated. However, Azerbaijan is seeking new partners in a bid to diversify its economy and tap into the cheap, experienced and advanced technology of the East Asian tigers.