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

  • 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.

  • The Armenian economy is likely to receive a short-term boost from its accession to the Eurasian Economic Union (EEU) in January 2015. Membership of the EEU will facilitate trade and investment flows from Armenia's primary export destination and source of FDI, Russia. Nevertheless, in the long term we believe EEU membership will hold back Armenia's economic growth potential as the economy remains reliant on Russian demand.

  • Georgian real GDP growth will remain relatively robust over the coming...

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Azerbaijan Operational Risk Coverage (9)

Azerbaijan Operational Risk

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BMI View: 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. This is reflected in Azerbaijan's score of 31.0 out of 100 in the overall BMI Crime and Security Risk Index, placing the country 24th out of 29 Emerging Europe states.

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...

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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: Strong forecast gas production growth drives our broadly bullish outlook on the Azeri upstream; a vast gas resource base offers further upside towards the end of our forecast period, although weak European demand and softening hub prices could weigh on project developments. Oil production is set to decline, due to rapid depletion at the major ACG fields and a lack of major new discoveries brought online. The downstream sector will continue to struggle, due to poor operational efficiencies and limited domestic and regional refined product demand growth....

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Petrochemicals

Azerbaijan Petrochemicals

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BMI View: Falling oil prices and delays in plans for a petrochemicals complex could lead to a downward revision in forecast petrochemicals capacities in Azerbaijan in the long term. As a result, we do not expect Azerbaijan to be able to utilise its massive resources in the near term.

Azerbaijan's GDP growth will be negatively affected by falling oil prices over the next two years. Even though the ongoing development of the country's petrochemicals sector counterbalance the loss in oil revenues somewhat, Azerbaijan's reliance on the oil sector has underpinned a deterioration in the competitiveness of domestic industries. These trends could lead to further delays in the development of the State Oil Company of Azerbaijan Republic (SOCAR)'s Oil and Gas Processing and Petrochemical Complex (OGPC), which has already been delayed from 2017/2018...

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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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