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 conflict surrounding Nagorno-Karabakh.

  • Armenia's economy will continue to struggle during 2016-2017 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 5.9% average growth achieved between 2011 and 2015 due to exposure to Russia's economic crisis, which has...

Azerbaijan Operational Risk Coverage (9)

Azerbaijan Operational Risk

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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 53.2 out of 100 in our Trade and Investment Risk Index, placing the country 19th among its...

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...

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...

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....

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...

Azerbaijan Industry Coverage (3)

Oil & Gas

Azerbaijan Oil & Gas

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BMI View: Our outlook on Azeri oil is heavily bearish, with the major ACG fields falling deeper into decline. Investments to stabilise output will help soften the fall; however, with a lack of new discoveries brought online this will be insufficient to reverse the overall trend. In contrast, we remain bullish on the prospects for Azeri gas, underpinned by large-scale new production from Shah Deniz. Prospects on the downstream remain poor, with ageing and low complexity infrastructure, a limited market for growth and weak prospects for investment.

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Headline Forecasts (Azerbaijan 2014-2020)

Petrochemicals

Azerbaijan Petrochemicals

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BMI View: Azerbaijan's hopes of establishing a world-class petrochemicals facility by 2020 have been dealt a major blow as the country's economic woes have prompted a freeze on the plans for a new integrated complex, the Oil and Gas Processing and Petrochemical Complex, which was intended to rival major Middle Eastern producers.

Azerbaijan's aim of becoming a significant petrochemicals exporter is unlikely to be realised in the foreseeable future. SOCAR is focusing on petrochemicals investment in Turkey, which remains a major export destination for the country's oil and is a large industrial economy with access to the EU market. Azerbaijan imports 60,000tpa of finished chemicals...

Telecommunications

Azerbaijan Telecommunications

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BMI View: The Azeri mobile market has returned to growth in 2014 boosted by the strong uptake of 3G and 4G services. Bakcell became the second operator to launch 4G services in May 2015 with Azerfon expected to launch their LTE services shortly. This could add further positive momentum to subscriber growth in the country. To the downside, BMI is concerned about the state intervention in the ICT sector, which could hamper the growth of both the mobile and wireline sector. The government touts the importance of developing an information society and encouraging telecoms growth but in practice, its actions tend to hinder market forces.

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Latest Azerbaijan Articles

  • With global growth continuing to stutter amid unconvincing growth performan...

  • A few key themes stand out when comparing BMI's forecasts against Bloomberg...

  • We have upgraded our oil price forecast this month with markets having pric...

Latest Azerbaijan Blogs

  • Russia's decision to intervene in Crimea, Ukraine, has several geopolitical...

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