Azerbaijan
In-depth country-focused analysis on Azerbaijan's economic, political and operational risk environment, complemented by detailed sector insight

Our comprehensive assessment of Azerbaijan's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Azerbaijan, as well as the latest industry developments that could impact Azerbaijan's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Azerbaijan before your competitors.

Country Risk

Azerbaijan Country Risk

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Core Views

  • Despite an escalation in violence along the border of the disputed Nagorno-Karabakh region in July/August 2014, it is not part of our core scenario to see the outbreak of a widespread military conflict between Armenia and Azerbaijan. While the leadership of each side espoused aggressive nationalist rhetoric in order to ensure domestic support, the key powers in the region (Armenia-supporting Russia and Azerbaijan-supporting Turkey) are unlikely to favour an outbreak of conflict on their southern and eastern flanks respectively.

  • The Armenian real GDP growth will slow in 2015 on the back of declining export demand from Russia, as well as stagnating remittance growth, a key driver of private consumption. With Armenia set to join the Eurasian Economic Union on January 1 2015 we believe the economy will remain heavily reliant on Russian support over the coming years...

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Azerbaijan Operational Risk Coverage (9)

Azerbaijan Operational Risk

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Azerbaijan is a high-risk country by regional standards owing to high levels of corruption, a raft of legislation limiting foreign business investment across many sectors, and the country's lack of access to international maritime trade routes, leading to a heavy reliance on its neighbours to meet its supply chain needs. However, investors can expect these risks to be mitigated in the future by the government's heavy investment in infrastructure and security as part of an effort to position the country as a major trade, transportation and tourism hub in the region. Azerbaijan scores 43.7 out of 100 in our Operational Risk Index, placing it in an uncompetitive 25th out of 30 states in emerging Europe and 100th out of 170 states in BMI's global  index.

The attractiveness of the Azerbaijani market is hampered by the lack of economic diversification, with minerals accounting for 93.5% of total...

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Azerbaijan Crime & Security

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Azerbaijan is a generally safe place for foreign business travellers, expatriate workers and tourists, and security threats facing these groups are typically petty and minor crimes, rather than injury- or death-inducing hazards. That said, Azerbaijan's image of stability masks several underlying threats that could become more pertinent over the coming years.

Azerbaijan faces considerable geopolitical risk from its frozen conflict (since 1994) with Armenia, which continues to occupy around 20% of Azeri territory, mainly Nagorno-Karabakh. Azeri leaders have repeatedly threatened to use force to reclaim the region, and while we do not anticipate conflict, such an outcome would constitute a high-impact event, owing to the likelihood that Russia and Turkey (and by extension NATO) could be drawn into the fray. A new war would jeopardise Azerbaijan's oil and gas industry, and thus energy flows to Western countries. Azerbaijan's tense relations with...

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Azerbaijan Labour Market

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Azerbaijan's labour market reduces the attractiveness of the country's business environment. Employment tax is high, and the education system fails to produce a sufficient number of scientists and engineers in order to cater to the needs of investors. Despite a series of labour market reforms having been passed since 2005 and high enrolment rates in primary and secondary education, Azerbaijan continues to underperform relative to its regional peers. This translates into high risks and additional costs and bureaucratic obstacles for investors. The country's overall Labour Market Risk score of 55.6 out of 100 is below the regional average, reflecting the relative unattractiveness of the country as an investment destination. Azerbaijan ranks 18th out of 30 countries in emerging Europe, between Turkey and Mongolia.

Labour costs and flexibility risks are high in Azerbaijan. At 24.8%, Azerbaijan's labour tax and contributions rate is among the...

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Azerbaijan Logistics

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Supply chains in Azerbaijan are focused on meeting the demands of the country's hydrocarbons sector, and while this industry is well developed, the state's overall logistics offerings are poor, negatively impacting the attractiveness of Azerbaijan to investors seeking to develop new industries in the country. In turn, this has held up the diversification of the country's economy away from its oil and gas focus. The country scores below the global average with a score of 44.0 out of 100 in BMI's Logistics Risk Index, placing it in joint 20th place with Armenia out of 30 states in emerging Europe. We note, however, that the country remains a logistics outperformer in comparison with other Central Asian states.

Azerbaijan's Market Size and Utilities score of 58.8 out of 100 benefits from the country's strong hydrocarbons sector, with government plans to diversify the economy opening up ample opportunities to investors....

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Azerbaijan Trade & Investment

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Azerbaijan's attractiveness as a business destination is severely impeded by the high levels of corruption and raft of legislation limiting foreign business investments across many sectors. These risks outweigh the government's openness with respect to investments in the hydrocarbons arena. Due to these factors, Azerbaijan receives a score of 44.0 out of 100 in our Trade and Investment Risk Index. This poor score puts the country in 27 th place among its 30 peers in emerging Europe. It sits between Ukraine and Uzbekistan, and far behind regional leader Estonia, which receives a score of 78.2.

Overall, Azerbaijan has a comparatively well-ordered and clear bureaucracy, particularly regarding the opening of businesses and the registration of property, which helps to keep costs and delays to a minimum for foreign businesses. This is reflected in the country's score of 58.4 out of 100 for Government Intervention. While tax collection...

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Azerbaijan Industry Coverage (3)

Oil & Gas

Azerbaijan Oil & Gas

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BMI View:   The outlook for Azerbaijan's upstream s ector is broadly bullish , with a substantial increase in the country's natural gas production offsetting a longer-term decline in oil output. We are more bearish on the downstream, and do not believe tha t forecast global refined fuels demand-supply dynamics will support the country's planned refinery upgrade and expansion projects.

Headline Forecasts (Azerbaijan 2012-2018)
  2012e 2013e ...

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Petrochemicals

Azerbaijan Petrochemicals

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Azerbaijan is set to move ahead with the expansion of petrochemicals capacities in 2014, which should boost the country's non-oil sector over the medium term, according to BMI's latest Azerbaijan Petrochemicals Report.

Azerbaijan's petrochemicals industry remains volatile and unable to deliver sufficient output for the country's needs. In H114, Azerbaijan produced 38,500 tonnes of polyethylene (PE), down 11.8% year-on-year (y-o-y), according to government statistics. This would put Azerbaijan on course to produce around 75,000-80,000 tonnes of PE in 2014 and significantly under-shooting the government target of 107,000 tonnes and implying a utilisation rate of two-thirds capacity. The poor performance of SOCAR's polymer production underscores the need for new, world-scale production to add value to the country's energy resources.

  • Real GDP growth in Azerbaijan came in at 2.1% y-o-y in...

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Telecommunications

Azerbaijan Telecommunications

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BMI View: After declaring 2013 to be the Year of ICT, Azerbaijan is arguably on a path to a drastically improved telecoms sector, with potential improvements to the business environment and growth in mobile, mobile broadband and wireline services. Chief among these, are government plans to reduce its presence in the industry, by creating an independent regulatory body separate from the MCIT, as well as the privatisation of the two dominant wireline companies Aztelekom and BCTPA. If both plans are realised, it would result in an influx of foreign investment into the sector, resulting in improved service offerings and expanded coverage to more Azerbaijanis. Such proposals have been announced in the past, usually yielding no tangible progress and so there is a good chance that these...

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