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AmCham Azerbaijan: Corruption Remains a Major Problem

Written by Madona Gasanova

01/09/2013 20:00 (228 Day 10:03 minutes ago)

The FINANCIAL - There are two main advantages of the Republic of Azerbaijan in comparison with other countries of the Caucasus. The first advantage of Azerbaijan is its great geopolitical location. The second advantage is the wealth of its natural resources. Corruption still remains a major problem in Azerbaijan but it does not hamper the USA as the second largest investor in the country.


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Azerbaijan is geopolitically vital in the emerging global system. The strategic value of the Republic of Azerbaijan prioritized by the U.S. is energy. Not only is Azerbaijan strategically located but it also affords several opportunities for providing an energy alternative and the possibility of a pipeline under the Caspian Sea to Central Asia,” Nargiz Nasrullayeva-Muduroglu, Executive Director at AmCham Azerbaijan, told The FINANCIAL in her exclusive interview.

The U.S. should invest in Azerbaijan in order to foster future cooperation between the two countries and provide assistance for Azerbaijan to develop democratic institutions, civil society and support the growth of the non-oil sectors of the economy,” said Nasrullayeva-Muduroglu.

Azerbaijan’s trade with the U.S. had surplus of over USD 60 million in 2013. The bilateral economic relations between the U.S. and Azerbaijan started from the transportation of Caspian energy resources to western markets. Till now U.S. companies which are members of AmCham Azerbaijan have been engaged in the development of Caspian hydrocarbons in the offshore zones of Azerbaijani oilfields. The Baku-Tbilisi-Ceyhan pipeline was supported by the U.S. Government and assigned as a primary route for Caspian oil transportation. In 1995 a bilateral trade agreement was signed between the United States and Azerbaijan granting the status of the “most favoured nation” to Azerbaijan. Along with this, a bilateral investment treaty was signed giving Azerbaijan the status of beneficiary country under the Generalized System of Preferences. Thus the relationships between the United States and Azerbaijan have been developing since then. Most of the U.S. companies intend to invest in the energy sector of the Republic of Azerbaijan.

The Ambassador to Azerbaijan, Richard Morningstar stated that the “wide range of shared interests” between the United States and Azerbaijan “intersects with many of the United States’ highest foreign policy priorities”. He outlined “three core areas of importance to the relationship: security, energy, democratic and economic reforms”.

Q. In which sectors are American investors most interested in Azerbaijan?

A. The statistics of U.S. companies established in Azerbaijan proves that the most financed sector is the energy sector, specifically the oil industry. Most of the U.S. companies are interested in investing in the natural resources of the Azerbaijani Republic.

Q. What are the main concerns for investors willing to invest in Azerbaijan?

A. In its 2009 Doing Business report, the World Bank commended Azerbaijan as one of the top 10 global economic reformers because of the business regulatory reforms it had undertaken over the previous two years that protected investors and simplified taxes. Azerbaijani authorities had hoped that the reforms would facilitate Azerbaijan’s admission to the World Trade Organization (WTO). In its 2013 Doing Business report, however, the World Bank raised concerns that reforms had stalled, as indicated by a fall in Azerbaijan’s rankings from 33 in 2009 to 67 in 2012, out of 185 countries surveyed. Positive developments included comparative ease in registering business property and resolving contract enforcement cases, but construction permits remained difficult to obtain, and substantial corruption and monopolies continued to constrain business development, according to the World Bank . On 12 February, 2013, President Aliyev insisted that local officials step up their support for entrepreneurs and not “interfere” with them by making “illegal demands,” perhaps alluding to calls for bribes.

Q. Which sectors are the most and least developed in Azerbaijan?

A. The most developed sectors are: energy production, trade, construction, transportation. As the banking sector is dominated by a large state bank, with too many small private banks to serve the domestic market, it remains fragmented and inefficient. Reforms should promote consolidation and modernization in the banking sector through increased competition.

The least developed sectors are: textile, agriculture, small and medium business.

Q. Can you please describe the main challenges of the construction business in Baku?

A. Construction companies do not meet building standards for disabled people. The old and soviet infrastructure is far behind the pace of construction. The absence of the country’s general plan is reflected in the strategic approach of foreign construction companies to the country. The demand is high but companies do not know what to do. Construction is concentrated in the Absheron region; in other regions only roads are being constructed. Construction of private and public participants does not sufficiently advocate the environmental safety of the country. This issue is very important due to the construction boom in the country.

Q. What is the perception of the tourism industry of Azerbaijan?

A. We are encouraged by the Government of Azerbaijan’s interest in the improvement of the country’s tourism sector. “Plan of Measures for the Year of Tourism” (Plan) approved by the President on 20 July, 2011, provides a great opportunity to improve the business environment in the tourism industry. However, the success of the Plan directly depends on the implementation of measures stipulated in it. In this context, improvement of business environment in the field of tourism would depend on improvement of the administration and normative legal basis. Thus:

  1. Preparation of the new draft of the Law on Tourism;

  2. Recommendations for simplification of visa procedures for tourists;

  3. Applying special tariff prices for local and foreign tourist groups;

  4. For the purpose of attracting foreign investments preparation of recommendations for development of the business environment to improve the tourism industry;

  5. Commercials on CNN, BBC, Euronews, Travel Channel and National Geographic to promote tourism in Azerbaijan are keys for success of the Plan and the Year of Tourism.

Improvement of the tourism industry is one of the key elements of the economic future of Azerbaijan. Unique geographical, geopolitical and climatic situation establish all necessary conditions to make Azerbaijan a tourist destination similar to Turkey, Cyprus, Italy or Georgia.

Q. What are the main advantages of Azerbaijan in comparison with other countries of the Caucasus?

A. There are two main advantages of the Republic of Azerbaijan in comparison with other countries of the Caucasus. The first advantage of Azerbaijan is its great geopolitical location. The second advantage is the wealth of its natural resources. The energy sector is the most developed in Azerbaijan. At the end of the 19th century, half of the oil in the world was produced in Azerbaijan, whose oil fields around the capital, Baku, were developed by the Nobel brothers, famed for dynamite and prizes.

Q. What about corruption in the country? Are AmCham members affected by the existence of corruption?

A. AmCham welcomes the Government’s anti-corruption measures which resulted in significant improvement of the investment climate in the country and in the daily life of society.

Over the past several years, the Government has adopted a series of measures to increase transparency and combat corruption. The introduction of “one-stop shop” systems at different government institutions, launching an e-government portal, separate online services of Ministries, establishment of ASAN Services, and other practical and legislative measures (such as adoption of Procedural Code of Administrative Offences, introduction of the norms on criminal liability of legal entities into the Criminal Code) undertaken by the Government have contributed to an increase in transparency. Although there has been an improvement in the situation, corruption remains a major problem.

We understand that The National Strategy on Increasing Transparency and Combating Corruption (the Strategy) started in 2007 expired in 2011. Measures for improving the operations of the anti-corruption commission, streamlining government licensing and regulation, tendering procedures, improvement and strengthening of the system of protection of the investment activities and increasing transparency throughout government operations was highlighted as a priority under the National Strategy. A significant portion of activities planned under the Strategy had been implemented; however there are still a number of important measures pending their implementation. For instance, draft laws on anti-money laundering/counter-terrorist financing, conflicts of interest, and whistleblower protection are yet to be introduced and implemented.

We also welcome the adoption of the National Action Plans for Combating Corruption and for promotion of the Open Government 2012-2015 (the NAP). We understand that the Government considers the NAP as a logical continuation of the Strategy. AmCham is pleased to note that in its day to day operations with the government agencies we felt the importance of the NAP. We believe that as the result of the NAP’s implementation the dialogue between government agencies and civil society, including business associations, intensified. AmCham is also pleased to state that implementation of the NAP appears to be generally effective, easing the operation of businesses and the lives of citizens. Nonetheless, the Government needs to take effective measures to increase the level of the services provided by the local executive bodies in Baku and the regions of the country as well as to monitor proper operation of the “one-stop-shop” principle in certain government agencies, such as customs authorities.

Q. Recently the World Bank has offered Azerbaijan the chance to develop information and communication technologies transforming the country into a regional ICT centre. Can a main oil exporter country become an ICT exporter?

A. The year 2013 was announced to be an IT year in Azerbaijan. The Ministry of Economic Development, the Ministry of Finance, and the Ministry of Information and Communications Technologies intend to boost development of the telecommunications sector and to turn Azerbaijan into a regional information and communications technologies hub, and a zone for renewable energy.

Q. Azerbaijan is often criticized for human rights violations. Recently Azerbaijan closed the university promoting democracy. What is the situation today?

A. Hillary Clinton visited in July 2010 and claimed that Azerbaijan had made “tremendous progress” in democratization and respect for human rights since its independence, but that “there is a lot of room for improvement” on such problems as restrictions on the media and civil society.



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