Economic cooperation between Azerbaijan and the United States

Overview of bilateral ties

 

Azerbaijan is the largest trade partner of the United States in the South Caucasus. In 2018 U.S. - Azerbaijan trade reached 818 million USD (export to the United States 505 million, import 313 million USD). That’s almost 45% percent increase from the previous year.

 

The top five U.S. exports to Azerbaijan by value in 2018 were the categories of Aircraft, spacecraft and satellites; civilian aircraft parts; miscellaneous machines, parts; taps and valves for pipes, tanks; and parts for heavy machinery, respectively. They have accounted for 64.07 percent of total exports to Azerbaijan.

 

The value of the top five categories of U.S. imports from Azerbaijan –– oil, gasoline, other fuels, value added to a returned import; aluminum plates, sheets, compressors and pumps –– accounted for 99.52 percent of all inbound shipments.

 

Up to date the US has invested more than 10 billion USD to Azerbaijani economy. Likewise Azerbaijan State Oil Fund (SOFAZ) has invested more than 8 billion USD in U.S. markets, including in fixed income, equities and real estate.

 

United States and Azerbaijan are enjoying strategic partnership in energy security, combating terrorism and transnational threats. Moreover, Azerbaijan is a key country providing U.S. connectivity to Central Asia and Afghanistan.

 

Although the United States is not part of the Southern Gas Corridor, strong partnership with the United States and latter’s bipartisan support has been critical in the context of diversifying energy routes and strengthening energy security of Europe. Diplomatic efforts of the U.S. and involvement of American companies, which contributed to the completion of BTC and BTE remain vital for the success of SGC as well. In his letter on the occasion of the launch of the Shah Deniz II in 2018, U.S. President Trump reiterated America’s support for strategic Southern Gas Corridor. It is imperative to note that U.S. government has strongly supported the Southern Gas Corridor across multiple administrations.

 

More than 250 American companies were registered in Azerbaijan. Major American construction and operation companies, contractors, service providers and investors have been largely involved in every single large and medium-sized project in Azerbaijan since independence.

 

In 2017 SOCAR and oil companies Consortia signed the new contract on the extension of ACG till 2049. As part of the contract, U.S. companies Chevron and Exxon got over 16 percent of shares in ACG Consortia.

 

Azerbaijan is looking forward for the next meeting of the Economic Partnership Commission which is due for a long time (previous, the 3rd meeting of EPC convened in Washington in April 2012). We are grateful to the U.S. side for proposing May 17 as a next meeting date, as well as for confirming availability of co-chair Principal Deputy Assistant Secretary P.Haas to travel to Baku.

 

Lower oil prices during 2015-2017 caught our Government’s attention, leading to prudent macro-economic policies and reforms. Thanks to active macroeconomic policies the economy has stabilized in 2017-2018. The non-oil sector started to expand due to reviving agriculture.

 

Improving business climate and reduced red tape reforms include – no state inspection of businesses, streamlined licensing system, e-Gov services for business, streamlined public services and low tax burden. In 2018 Azerbaijan ranked 35th in the Global Competitiveness Report and 25th in 2019 World Bank Doing Business Report, including 9th for starting business and 2nd in the World for investor protection. Improved business and investment climate in Azerbaijan opens new opportunities for U.S.-Azerbaijan B2B ties.

 

Azerbaijan has also scored high in the “2019 Index of Economic Freedom” and marked as a most improved country in Rule of Law category since the introduction of an Index in 1995. Azerbaijan saw a sharp rise in property rights, investment freedom and fiscal health.

 

4th Trans-Caspian Forum will be held in Washington, DC on May 22-23, 2019. The Trans-Caspian Trade and Transit Corridor is a regional integrator, trade facilitator and viable transit connector between Europe and Asia. Connecting trade, people and economies, the modern trans-Caspian corridor has matured to strategic importance with extensive and integrated network of infrastructure, special economic zones, harmonized customs, cross-border procedures and more along this route.  Azerbaijan is one of the initiators and facilitators of the Forum and we are looking forward for an upcoming event as an opportunity to highlight Azerbaijan’s key role in the Trans-Caspian region. (Note: high ranking U.S. officials, including, Undersecretary of State Manisha Singh already confirmed participation).  

 

AmCham “Door Knock Mission 2019” to be held on May 20-21, 2019 will be an important opportunity to highlight U.S. business interests in Azerbaijan and present investment and business opportunities in Azerbaijan. The Mission will underscore strategic importance of Azerbaijan-U.S. business relations and viable options both in energy and non-oil sector.  

 

Since 1996 the United States – Azerbaijan Chamber of Commerce (USACC) was instrumental in developing business ties between the businesses and in attracting US investments into Azerbaijan. We commend recent dynamism of the USACC in facilitating commercial links between the countries, particularly in the areas of agriculture, construction and energy. 

 

 

 

 

 

 

 

 

 

 ECONOMIC REFORMS IN AZERBAIJAN

 

The economy has stabilized in 2017-2018 thanks to active macroeconomic policies and stronger oil prices. The non-oil sector started to expand mainly due to reviving service and agriculture sectors. Higher oil prices, better non-hydrocarbon exports and import compression have restored the current account surplus. Stabilized economy led to recovering consumer and investment confidence and IMF forecasts 3.4% GDP growth for 2019, well above previous forecasts.

 

In order to lessen dependence on volatile oil markets and ensure sustainable development pathways and transition into post oil era, Strategic Roadmaps outlining 11 priority sectors of the economy have been adopted in Azerbaijan, accompanied with comprehensive reforms targeting enhanced regulations and increased transparency in all areas.

 

Government focused on targeted reforms on improving business environment, including, limited price control, setting no limits on amount of foreign capital in companies, lifting restrictions on repatriation of profits and technology transfer, no discrimination between foreign and domestic investor, no foreign exchange restrictions and no prior authorization of foreign investment.

 

All inspections in the field of entrepreneurship have been suspended at legislative level till 2021. Enhanced licensing rules – reduction in number of licensable activities (from 59 to 29), drastic reduction in licensing fees and enhanced application procedures are drivers for doing business. Council of Appeals has been established to examine complaints of entrepreneurs. Newly established Agency for Development of SMEs under the Ministry of Economy envisions introducing SME houses to operate at the regions. SME houses will render wide range of services, including capacity building, consulting, financial and other services. 

 

Reduced red tape reforms include – no state inspections of businesses, streamlined licensing system, e-Gov services for business, streamlined public services, one-stop-shop systems, low tax burden.

 

While higher oil prices should help to contain the negative impact on Azerbaijan’s fiscal balances, there is a concern about the quality of public investment, and the economy’s capacity to absorb a large jump in capital spending. The government is planning to address this concern, by implementing a set of fiscal rules, starting in 2019, to guide fiscal policy over the medium term.

 

Overall Azerbaijan is well placed to benefit from prudent structural reforms combined with the rebound of oil prices. The resolution of the International Bank of Azerbaijan issue, while costly will pave the way for gradual resumption of lending over the course of 2019.

 

 

 

 

 

 

 PROSPECTS FOR AGRICULTURE COOPERATION

 

Favorable climatic conditions and extended growing season afford production of a wide variety of crops in Azerbaijan. Agriculture is a key segment of Azerbaijani economy, employing around 40% of the working population.

 

Inaugural Illinois–Azerbaijan Agriculture Forum held in Chicago on April 3-5, 2019 identified unique opportunities for promoting agricultural cooperation and enhancing relevant trade between the USA and Azerbaijan and facilitated useful G2B, G2G and B2B meetings.

 

Azerbaijan is among top 20 global producers of sour cherries, chestnuts, cranberries, currants, figs, hazelnuts, persimmons, quinces, raspberries.

 

Cooperation in the field of food processing and packaging solutions for small and mid-size meat, dairy, fruits and vegetables production, as well as, packaging equipment and materials for different segments.

 

Learning from the U.S. businesses in the areas of cost-effective and cost-saving technologies for fish farming, vegetable oil production, fruit/vegetable drying systems, including freeze drying and other post-harvest processing technologies.

 

Cooperation with the USAID in the field of agricultural support to Azerbaijan – increasing incomes and employment in the regions/rural areas, technical assistance to agribusinesses and farmers, supporting SME’s in the field of agribusiness. Possible project titles may include – “USAID for Lankaran”, “USAID for Guba” etc, while contributing to the diversification of economy and employment in the regions.

 

Cooperation in the field of agro research and education/capacity building, including fellowship programs by the U.S. Department of Agriculture for policymakers and scientists. Special programs, including, Borlaug Fellowship Program (promoting food security and economic growth by providing training and collaborative research opportunities) and Cochran Fellowship Program (training to enhance technical knowledge and skills in areas related to agricultural trade, agribusiness development, management, policy, and marketing).

 

Cooperation with upper U.S. Midwest States in the fields of production of major agricultural crops, including, soybeans. United States is a leading producer and exporter of soybeans in the World. Learning U.S. experience in additional uses for soybeans - feeding livestock, human food and production of soybean oil.

 

Cross-border financing services through local financial institutions for different market segments, particularly for export or agricultural equipment leasing and financing.

 

Franchising opportunities for local businesses in service businesses, hospitality, and restaurant and fast-food industries.

 

 

U.S. – Azerbaijan trade in goods (2018)

 

All figures are in million USD

Month

Export to Azerbaijan

Imports from Azerbaijan

Balance

January 2018

16.9

117.9

-101.1

February 2018

15.9

1.1

14.8

March 2018

15.3

75.3

-60.0

April 2018

12.0

2.1

9.9

May 2018

16.1

83.7

-67.6

June 2018

34.1

117.0

-82.9

July 2018

25.0

30.2

-5.2

August 2018

125.1

17.7

107.4

September 2018

12.0

38.7

-26.7

October 2018

13.4

14.8

-1.4

January-October 2018

784.3

285.7

498.6

-212.9

 

U.S. – Azerbaijan trade in goods (2017)

 

All figures are in million USD

Month

Export to Azerbaijan

Imports from Azerbaijan

Balance

January 2017

17.5

39.3

-21.7

February 2017

15.9

0.8

15.1

March 2017

19.7

2.5

17.2

April 2017

185.7

1.4

184.3

May 2017

12.4

33.3

-20.9

June 2017

12.1

40.4

-28.3

July 2017

19.7

1.0

18.7

August 2017

13.4

1.9

11.5

September 2017

13.0

41.0

-28.0

October 2017

13.7

43.4

-29.7

November 2017

12.7

5.4

7.3

December 2017

18.8

1.5

17.3

TOTAL 2017 - 566.5

354.6

211.9

142.7

 

 

 

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