The Financial Times recently ran a piece looking at renewed — if still not widespread — interest in investment in Azerbaijan. The crux of the story is that a few funds are exploring investment opportunities in the former Soviet republic, balancing remaining corruption issues with Baku’s reform programs and the enormous financial liftoff the country has experienced for the last decade and more.
There is a great deal of sense to this. Azerbaijan is still developing its own identity, somewhere between European and Turkic, but clearly believes that its future lies with Europe rather than with the East. Baku is explicit that they don’t want Dutch Disease, and are pouring the wealth gained from their large petrochemical reserves into the development of other industries. Added to a determined — if uneven — government effort to root out corruption and a young, dynamic, well-educated populace, and Azerbaijan has all of the elements for a great deal of foreign investment.
That it has not received this to date is as much a function of inertia as it is of reforms Baku must yet undertake. First and foremost, as the article notes, the lack of a publicly-listed stock market is a real barrier to investment; the Baku Stock Exchange only trades in corporate bonds, common stock for a handful of companies, and government bonds. Equities drive investment, and an expansion of the BSE would go a long way toward resolving this problem.
Public perception of the country’s governance is a matter that can only be resolved with time. Baku made news in releasing an imprisoned blogger earlier this year, an act that overshadowed its thriving Opposition press. After a brief spate of negative stories that ran around the EuroVision song contest, the net view of the country is more positive than before, a trend that can continue after the next elections if the perennially-fragmented Opposition can put forth a unified front against which Baku’s renewed commitment to democracy can be tested. Azerbaijan, like most former Soviet Republics, is not without corruption, but it is to their credit that they admit the problem and have introduced measures to combat it — measures that will still take some time to bear fruit.
Despite all of this, it is hard to deny Azerbaijan’s attractiveness as an investment opportunity. As the Financial Times piece notes:
That Azerbaijan has wealth and will develop rapidly is not in doubt. Mr [Daniel] Broby adds: “This country is going to really take off in the next five years. The big question is how you access that opportunity.”
Mr [Clemente] Cappello counsels patience. “Azerbaijan is finding its own path somewhere between a European/Turkish culture and a Dubai-type business environment. If you compare it to some other countries in the area, the progress made is impressive.”
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