Azerbaijan’s economy to grow thanks to projects in liberated territories

The long-awaited projects to restore the Azerbaijani lands liberated from the Armenian occupation are the main focus of Azerbaijan’s socio-economic development in the coming years. Of course, these are quite expensive programs that require billions-of-dollars-worth injections not only from the state but also from private businesses. However, one should not forget that any investment must pay off and be profitable. No matter how dear the Karabakh projects are for Azerbaijan morally, they are no exception in this matter. Local and international experts assure that large-scale infrastructure projects planned in Karabakh will be one of the drivers for Azerbaijan's economic growth in 2021.

No risks

As is known, the state budget for 2021 provides for 2.2 billion manats ($1.2 billion) or 2.9 percent of GDP for these purposes, and some of the work, in particular, on infrastructure, has already started. Moreover, despite the growing costs and the continuing uncertainty amid the pandemic, the S&P Global Ratings international rating agency recently confirmed Azerbaijan’s rating at BB+ and also changed the outlook from ‘negative’ to ‘stable.’

This positive shift took place precisely due to the settlement of the Nagorno-Karabakh conflict, which for many years was considered the main risk for the country’s economic development. Now that Azerbaijan has regained control over the liberated territories with all their economic potential, the issue of risks has been resolved forever. "The revised outlook reflects the rating agency’s expectation that a Russia-brokered ceasefire agreement between Azerbaijan and Armenia in the Nagorno Karabakh region will broadly hold, and that an economic rebound and comparatively higher hydrocarbon prices will help the country avoid a significant deterioration in its fiscal and external positions over the year ahead," S&P experts said.

Analysts of the Russian Gazprombank are also confident that S&P’s decision to upgrade the forecast on Azerbaijan contributes to the settlement of the situation in Karabakh, following which large-scale infrastructure projects are planned in this region.

"The agreements reached and their observance minimized the risks for the external liquidity position and for the growth of the Azerbaijani economy, which could arise in the event of a protracted conflict," the bank said in its conclusion. Besides, it also helped mitigate risks to the national currency and macroeconomic stability in Azerbaijan.

The first harbingers

The new projects in Karabakh have the potential of ensuring further economic development in Azerbaijan, with the economic growth in 2021 expected at 2.1 percent after a sharp decline in GDP in 2020. In such a case, the indicator can stabilize at almost 4 percent per year.

The fact is that as soon as the primary infrastructure is restored in the region, the implementation of projects that have an excellent potential for return will begin in agriculture, tourism, mining, production of building materials, plus cargo transportation. New revenues will gradually launch all the levers of economic activity frozen due to the pandemic, and the list of products for export will further expand.

What is even more essential is that all these projects are related to the non-oil sector, so already this year we can witness a significant increase in its share both in terms of the state budget revenues and in GDP. As Prime Minister Ali Asadov noted, the government’s priorities for the current year include the development of tourist routes in the Karabakh region, projects in the agricultural sector, installation of modern irrigation systems, the study of the possibility of building hydroelectric power plants.

"Investments in these areas will be important for the country in terms of the growth of both non-oil exports and import substitution. Various mechanisms can be used to stimulate investment in these territories, including industrial parks and neighborhoods, agro- and technology parks, and other investment stimulation tools," said Vusal Gasimli, executive director of the Center for Analysis of Economic Reforms and Communication.

The Innovation Agency has recently taken the first step by signing a memorandum with the GOSB Technopark in one of Turkey’s largest industrial regions, which supports 130 technology companies. The memorandum provides for the creation of a High-Tech Park in Karabakh.

For potential investors, the Karabakh region can be very attractive, given the possibility of supplying products to the market from Iran with its 80 million population and Azerbaijan’s Nakhchivan Autonomous Republic to the Turkish market with the population of 83 million people.

Moreover, in the coming years, international and foreign financial organizations are willing to provide loans to countries that have gone through military conflicts, not only for the government but also for private projects. A recent example is Hungarian EximBank, which has opened a credit line for $100 million for Hungarian companies intending to participate in the reconstruction program. Besides, Hungary also offered a grant of 25,000 euros for demining work. The UK is ready to provide similar assistance. Turkey, Russia, Iran, and other friendly countries have expressed their readiness to participate in Karabakh projects.

In a word, just 2.5 months have passed since the celebration of the victory in the Karabakh war, and Azerbaijan itself is only preparing a Strategic Action Plan for the territories liberated from the Armenian occupation. However, business proposals are already pouring in from abroad. After developing a single concept and the definition of a specific list of priority projects, the coverage of investment initiatives will be expanded.

Expert Gulu Nuriyev