Azerbaijan

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

Azerbaijan

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

  • Political tensions in the South Caucasus will remain high over the coming years as increased Russian intervention in Georgia's breakaway territories fuels concerns that Russia will attempt to annex Abkhazia and South Ossetia. Meanwhile, Azerbaijani-Armenian relations will remain strained over the frozen conflict surrounding Nagorno-Karabakh.

  • Armenia's economy will continue to struggle during 2015-2016 primarily due to its trade and remittance flow links with ailing Russia. Beyond this we continue to see little means of diversifying its growth model away from one driven by private consumption underpinned by volatile remittance flows.

  • Georgian real GDP growth will slow over the next two years relative to the 5.5% average growth achieved between 2010 and 2014 due to exposure to Russia's economic crisis, which...

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Azerbaijan Operational Risk Coverage (9)

Azerbaijan Operational Risk

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BMI View: Azerbaijan's high levels of corruption, lack of access to international maritime trade routes and poor education system heighten risks for investors. In addition, tense relations with its neighbours have the potential to escalate, increasing the threat to security stability. However, the government is investing heavily in infrastructure and is keen to attract foreign investment to diversify its economy and decrease its reliance on domestic oil production. Azerbaijan's business environment is therefore likely to improve in the longer term. At present, the country receives a low score of 46.9 out of 100 in our Operational Risk...

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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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BMI View: Azerbaijan's endemic corruption in all spheres of public life and cumbersome legislation in certain industries limits foreign involvement and poses major risks for investors. Limited financial sector development also weighs on domestic access to finance. On the upside, the government offers generous tax breaks in technology sectors and, at least on paper, welcomes foreign investment, viewing it as a tool for economic development. Moreover a number of infrastructure and institutional development projects are in progress, which we expect to see pay off in the coming years. For now, Azerbaijan receives a poor score of 53.3 out of 100 in our Trade and Investment Risk Index, placing the country 19th among its 31...

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Azerbaijan Industry Coverage (3)

Oil & Gas

Azerbaijan Oil & Gas

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BMI View: The outlook on the Azeri gas sector is broadly positive, with the second phase expansion at Shah Deniz set to drive strong growth in production from 2019. A substantial untapped resource base in the Caspian Sea offers upside to output in the backend of our forecast period; however, development will hinge on expanded export infrastructure and a supportive pricing environment in Azerbaijan's main export market. The oil sector looks in terminal decline, driven by rapid depletion of the flagship ACG fields and a lack of new production slated to come online.

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Headline Forecasts (Azerbaijan 2013-2019)
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Petrochemicals

Azerbaijan Petrochemicals

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Azerbaijan's petrochemicals sector is set for increasing competition with Iran in future, following the decision to ease sanctions, but this is unlikely to hold back the country's ambition to build world-scale plants. However, until they are in commercial operation, the petrochemicals industry will remain small, dedicated to domestic consumption and operating at low levels of capacity utilisation.

The Azerbaijani petrochemicals market will be undermined by slow growth, caused by lower oil prices and the depreciation of the manat on consumer demand. The non-oil economy is set to outpace overall GDP growth over the medium-term, which indicates the focus will be on petrochemicals consumption growth.

Focus in 2015 is on the construction of new PE and polypropylene (PP) units, which will add 200,000 tonnes per annum (tpa) and 100,000tpa of capacity respectively. Beyond that, attention will shift to the...

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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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Latest Azerbaijan Articles

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Latest Azerbaijan Blogs

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