Turkey has put increasing its range of trading partners high on its list of priorities amid the ongoing global financial crisis, which has resulted in dramatic economic contraction in many of Turkey’s traditional trading partners. While these endeavors have not always borne fruit, some countries seem more promising than others. Azerbaijan is one such place. But although the country’s trade relations with Turkey have remained relatively unchanged through the heat of the crisis, and while many opportunities continue to develop, some businessmen fear that political issues could damage trade relations between the two countries.
“2008 was a good year in terms of economic relations between Turkey and Azerbaijan,” said Cengiz Gul, chairman of the Turkish-Azerbaijani Business Council at the Foreign Economic Relations Board (DEIK). “And, despite the disastrous effects of the crisis on the global economy, we are hopeful that 2009 will also be a good year,” he stated.
Over the past few years, trade volume between the two countries has skyrocketed, rising from around $400 million in 2004 to almost $3 billion in 2008, Gul said, despite the effects of the crisis.
Turkey is Azerbaijan’s largest import partner and second largest in exports. Turkish businessmen’s total investment in Azerbaijan was $6 billion as of 2008. Excluding countries heavily involved in the energy market in Azerbaijan, Turkey ranks third in terms of foreign direct investment (FDI) in the country. In the eastern parts of Azerbaijan, Turkey ranks first in FDI. Gul said there were at present about 1,000 Turkish investors in various sectors in Azerbaijan and around 300 investors who operate in service sectors and in trade.
Gul believes that opportunities are knocking at the door of Turkish investors for investing in areas supported by the government and deemed strategic for development. He cited agriculture, health and tourism, as well as high-tech industries, as potential strategic areas.
“During the Soviet Union’s rule, Azerbaijan provided fruits and vegetables to many of the USSR’s big cities. It was like the „bakkal’ [grocery store] of the Soviet Union,“ Gul explained. “Now, it is not even able to provide for its own produce needs. The reason is the sudden transition from the planned economy to a free market economy and the distribution of land to the citizens in small allotments. These small pieces of land cannot be farmed very well because they’re too small to use tractors, etc. Their lands cannot be used any more.”In Turkey, opportunities abound in the agricultural sector for those who want to go to Azerbaijan and farm the land for export to Europe, using Turkish agricultural technology. “It can be a very profitable business,” Gul emphasized.
Azerbaijan’s famous hot springs — especially “Naftalan clay,” which is mixed with petroleum products — are considered to be among the most medicinal in the world. “Unfortunately, they faced years of neglect before, during and after the Soviet Union. Now there are some thermal springs with hotels, but they are not perceived to be very hygienic. In those areas, good hotels should be built, which would be quite profitable.”
“Investment is still a thorny issue,” But obstacles to foreign investment in Azerbaijan remain: the process beginning discussions on opening the Turkish-Armenian border harmed Turkish-Azerbaijani relations. “We were in Azerbaijan in March for a regional visit of the Turkish-Azerbaijani Business Council, and we could feel tension in the air. People of course were too kind to say anything outright, but we felt it.” Upon their return to Turkey, Gul and other members of the council asked the Turkish government to take urgent precautions to safeguard Turkish-Azerbaijani trade relations. „However, there was no reaction from high-level administrative bodies in Turkey,“ G”l reported.
To highlight the enormous market potential that Azerbaijan presents, Gul pointed to the astronomical growth in Azerbaijan’s trade relations with the world since the dawn of the new millennium: its exports have increased by 857 percent, while its imports increased by 400 percent. And although this was largely brought about by a large growth in oil and gas revenue during these years, it is hoped that trade figures will not decline too much.
But with downwardly spiraling oil prices, some have grown concerned that the country could experience a devastating downward revision, all but severing its ability to absorb Turkish exports. Luckily, with the global economy showing hints of recovery, this does not appear to be likely.
“It is difficult to predict how the crisis will affect Azerbaijan. But, since there is not a complete “institutionalization” in the financial sector, the crisis does not seem to have significantly affected things,“ Gul said.
Indeed, Azerbaijan has long been identified as one of the more insulated countries in the world, and its abundant oil and gas reserves, believed to be among the largest in the world, have helped contribute to the country’s phenomenal economic growth rate, making it among the top growth countries in the world for a number of years. In 2005, Azerbaijan experienced 26.4 percent growth. The following year, this figure surged to 36.6 percent and approached 40 percent early in 2007 before declining steeply through the rest of the year. Nonetheless, real growth in the country remains overwhelmingly high. And while the growth was largely the result of activity in the oil and gas sector, even manufacturing industries experienced double-digit growth.
However, growth projections have changed. While oil and gas exports contributed to just 10 percent of growth in 1990, today the sector accounts for about 60 percent.
Gul largely shrugged off the difficulties posed, saying that authorities in Azerbaijan had made their calculations and budgets according to scenarios of $
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