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Books on Azerbaijan
REPUBLICAN REFERENCE
Area (sq.km)
86,600
Population
7,868,385
Principal ethnic
groups
Azeri 90%
Russian 2.5%
Armenian 2%
Dagestani 3.2%
other 2.3
Capital
Baku
Currency
Azeri Manat
President
Ilham Aliyev
President
Ilham Aliyev
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Update No: 308- (29/08/06)
The key problem for Azerbaijan remains the unresolved issue of
Nagorno-Karabakh. With one and a half million Azeris being refugees from the 20%
of Azeri territory also occupied by the Armenians to link the enclave to Armenia
proper, the pressure on Baku to find a way out is enormous.
Pessimism reigns over Karabakh peace process
All sides remain pessimistic about the peace process over Nagornyo-Karabakh,
despite a visit by the newly appointed American negotiator to the region
intended to breathe new life into negotiations. Revelations about the latest
peace deal leave the conflicting parties still far apart.
Matthew Bryza - who was appointed as the United States co-chair of the OSCE's
Minsk Group on Karabakh in June - visited Karabakh, Armenia and Azerbaijan
during late July. He said little in public following his meetings, but some saw
his trip as a sign. Washington, at least, is determined to move the process
along despite recent setbacks.
He arrived unaccompanied by his French and Russian co-chairs on the Minsk Group,
a month after the three had delivered an unusually blunt report to the OSCE,
which presides over negotiations on the Karabakh dispute, signalling that the
current peace process had stalled.
The co-chairs said they had "reached the limits of our creativity" and
put the onus on the leaders of Armenia and Azerbaijan to carry the peace process
forward.
"We remain ready to assist," said the statement. "As mediators,
however, we cannot make the difficult decisions for the parties. We think the
parties would be well-served at this point by allowing their publics to engage
in a robust discussion of the many viewpoints on these issues."
Blunt speaking by Bryza
Before arriving in the region, Bryza broke with precedent by giving an unusually
frank interview to Radio Liberty in which he revealed details of a peace
agreement that the two sides had been discussing over the past two years. The
two presidents, Ilham Aliyev and Robert Kocharian, rejected the deal in two
meetings this year.
Under discussion has been a phased withdrawal of Armenian forces from the
Azerbaijani territories around Nagorno-Karabakh, a referendum on the status of
Karabakh itself, and the deployment of a peacekeeping force.
In their report to the OSCE, the negotiators issued a stark warning of what was
at stake if the process collapses and the deal is not accepted,
"Ultimately, it is the two sides that will be held accountable by their
peoples and by the international community if their actions lead to war and not
peace."
Preparing for peace or war?
Since the failed Rambouillet summit between the two presidents in February, the
two sides have, at least in public, displayed little flexibility, with the war
option being discussed with increasing frequency in the Azerbaijani capital,
Baku.
President Aliyev said in February that the talks were at a "dead end,"
and more recently, that further negotiations in the current framework were
"hopeless" - a verdict that Minsk Group co-chairman Bryza described as
"not helpful."
The Minsk Group's appeal for the two presidents to "prepare their publics
for peace and not for war" is being given little emphasis in Baku, where
the options seem to be dwindling. Azerbaijan has one huge advantage over Armenia
- its large and growing oil revenues from abroad, coming from its Caspian Sea
production, where reserves are 31bn barrels of oil. Export is now made by the
Baku-Tbilisi-Ceyhan pipeline, operable from May. Aliyev's idea is to spend them
on his army and prepare for or threaten war.
But Azerbaijan's military is rated by many Western analysts as both weak and in
a state of structural torpor due to years of neglect by the late president
Heydar Aliyev. One of the few distinctive differences between father and son is
the money now being lavished on the military sector.
Military expenditures in Azerbaijan for 2006 were slated to rise to some US$600
million, but President Aliyev said publicly on 31 July that the actual figure
would rise to US$700 million, an announcement that came a day before the arrival
of the OSCE's Bryza.
Even the lesser figure represented a doubling of the 2005 defence budget. Aliyev
says he wants Azerbaijan's military spending to equal the total government
budget for Armenia.
Having a large military - or at least a large defence expenditure programme -
may serve not so much as a platform for a future war, but rather as a bargaining
chip. This strategy would be consistent with Baku's approach thus far, promising
a number of rewards for Yerevan if Nagorno-Karabakh is returned to Azeri
control.
Analyst Leila Aliyeva believes that the burgeoning military establishment will
be used as an implied threat or a deterrent. "Most of the politicians here
think that not the actual war itself, but rather the mere existence of a strong
army, might be a deterring factor."
When combined with the government's economic carrot-and-stick approach to
negotiations, the modernized military might begin to look like a very real
threat, although an Armenian Foreign Ministry source told ISN Security Watch in
February, "We defeated Azerbaijan in war twice. Do they really want to try
again?" Of course Armenia had substantial help from Russia, who will
inevitable be sucked into any future conflict, once again.
*******
The following is a very revealing and interesting article by an Azeri
economist:-
Microfinance in Azerbaijan
By Chingiz Mammadov
Background
The origin of microfinance in Azerbaijan may be traced to
"perestroika" when, for the first time since Lenin's short period of
"new economic policy" at the beginning of the 1920s, Soviet
authorities decided that the development of private entrepreneurship was not
hostile to socialism and started to provide loans to develop small businesses.
It proved wrong: Socialism along with the Soviet Union itself vanished. However,
with the fall of the state the necessity to return state loans disappeared as
well.
The following period of turmoil and the gradual transition to a market economy
did little, if anything, to improve financial discipline in the sphere of
microfinance. To further worsen the situation, some international relief
organizations that came to Azerbaijan in response to the humanitarian crisis
caused by the war with Armenia over Nagorno-Karabakh, began providing
microfinance services.
These organizations, more familiar with typical relief situations, did not
follow "best practice" microfinance and their eventual failure
furthermore deteriorated financial discipline. Microfinance started to become
more rigorous in 1997-1998 with the arrival of international NGOs such as FINCA,
ADRA, and Shorebank.
These NGOs, who are microfinance specialists with programs worldwide, launched
microfinance programs in Azerbaijan. These programs helped spur other "best
practice" microfinance institutions. During the past 5-6 years the number
of microfinance institutions (MFIs) in the country has steadily increased making
it one of the more active participants in the process of economic development.
The activities of MFIs in Azerbaijan contributed to the economic development
within the framework of poverty reduction strategy. Currently, altogether, MFIs
in Azerbaijan cover about 40 regions out of 70. The number of active clients is
more than 22,000. So far, MFIs in Azerbaijan have contributed to poverty
reduction in the regions by provision of microfinance loans exceeding US$30
million to its vulnerable population.
For some regions, such as those located close to Nagorno- Karabakh where the
majority of Internally Displaced Persons (IDPs) are, or for Nakhchivan, which as
an autonomous exclave is isolated from the rest of the country, microfinance
programs are crucial in satisfying the basic needs of the people.
Policy
The majority of microfinance institutions use the solidarity principle to
issue loans to groups of clients. In group lending the number of clients within
the group varies from three to 25 though most groups have 10 to 15 people. Most
organizations follow mixed gender policies, though there are some that think
that separate-gender policies are more effective. Overall, female participation
in microfinance has been quite successful. In some programs, 80% of clients are
women.
For solidarity group loans the minimum loan size fluctuates from organization to
organization depending on the type of business, varying from US$50 to US$250.
The maximum amount of the loan is US$30,000. As reported by MFIs working in
Azerbaijan, the average repayment rate is 98-100%.
However, some MFIs, such as ADRA in Nakhchivan, complement group solidarity with
collateral. The range of collateral is very broad - from jewelry to livestock to
household items to real estate. The law requires the registration of collateral
and registration fees vary depending on the total amount of collateral. For the
value of collateral up to about US$2000, the fee is US$10; between US$2000 to
US$5000, US$22, and above US$5000, US$62. ADRA reached an agreement with
regional authorities to register collateral at the ADRA's office without the
need for notary services. Otherwise, paying a US$10 registration fee for loans
starting at US$200 would be too expensive.
Among AMFA members the rates of interest on declining capital vary from 1.5% to
5% and for flat rates from 1.5% to 4%. The lending periods are closely linked to
the business plans and vary from 1 to 24 months. In turn, the target population
depends on the philosophy and vision of the particular organization. For
instance, some organizations like ACDI/VOCA have focused on local populations
while others, such as FINCA, Normicro LLC, Oxfam - "Finance for
Development", Save the Children, and World Vision targeted refugees and
Internally Displaced Persons and locals. Some, like ADRA and IOM functioning in
Nakhchivan or NHE operating in the second largest city Ganja, work in one
selected area. IOM, in addition, in following its institutional mandate, focuses
on seasonal migrants and potential migrants.
Azerbaijan Micro-finance Association (AMFA)
While there is competition between many of these MFIs, common interests such
as the necessity to improve the overall environment for microfinance in the
country, dissemination of best practices, and support in solving problems shared
by all MFIs, along with a still large untapped market, have lead to increased
cooperation. One example was the First Azerbaijan Microfinance Conference held
in Baku in October 2001, which was organized by a number of MFIs. As a result of
this conference, in December 2001 nine local MFIs with the support of
international NGOs and Mercy Corps-Azerbaijan established the Azerbaijan
Microfinance Association (AMFA).
There are currently 11 AMFA members, 10 of which provide direct microfinance
services, including the original nine members ACDI/VOCA, ADRA, FINCA, NHE, NRC,
OXFAM, IOM, SCF, and WVI, plus Mercy Corps, which, by the virtue of being the
umbrella grant manager for Azerbaijan Humanitarian Assistance program (AHAP)
channels USAID funds to two microfinance projects managed by Save the Children
and ADRA . The last member is the Danish Refugee Council, which joined AMFA in
January 2003.
Besides AMFA members, microfinance services in Azerbaijan are currently provided
by Shorebank, Azerbaijan Microfinance Bank (AMFB), the Agricultural Development
and Credit program created by the Government of Azerbaijan with the loan taken
from the World Bank, and the Rural Investment Foundation (RIF) LTD, a
non-banking credit institution financed by EU. Shorebank, AMFB, RIF are, in many
ways, acting as banks rather than microfinance institutions. Many AMFA members,
such as ACDI/VOCA, also share similarities with banks in that they offer
individual lending services. AMFA members have provided several thousand dollars
worth of individual loans.
Challenges
The major problem facing micro-finance in Azerbaijan is that there is no
special law on micro-finance in the country. Therefore, all micro-finance
activities are regulated by the Civil Code and the "Law on Banks and
Banking Activities". To conduct micro-credit activities an institution has
to obtain a license from the National Bank; the issuance of which is governed by
the Regulation of the National Bank. This regulation requires that to get a
license an institution should first be registered as a legal entity with the
Ministry of Justice.
However, an "amendment" made recently to the "Law on
B&BA" says that along with political parties, state agencies and local
authorities, "non-commercial organizations cannot create credit
organizations" (Article 16.1). In turn, the Civil Code of Azerbaijan lists
non-commercial organizations (public unions and funds) as non-governmental
organizations (Article 3 of the Civil Code; "Law on NGOs (Public unions and
Funds)" of June 13, 2000). Thus, this amendment does not allow
international NGOs to establish credit organizations in Azerbaijan.
At this time, micro-finance organizations have only one viable option - to be
registered as local limited liability companies (LLC). This means that they are
considered purely commercial entities with no development or social agenda.
Additionally, while micro-finance institutions used to pay about US$110 to get a
license from the National Bank, micro-finance institutions now have to pay the
commercial fee of approximately US$5400. AMFA's advocacy efforts have already
resulted in better understanding of microfinance by the government agencies, and
currently AMFA is negotiating with the government the possibility to lower the
amount of registration fee for MFIs. Another challenge for micro-finance
services in Azerbaijan is the non-friendly taxation environment.
Currently, MFIs are obligated to pay all taxes applicable to other for-profit
structures and commercial enterprises including profit taxes that are based on
outdated profit calculations.
When AMFA was created in December 2001 only three members were registered with
the Ministry of Justice and had a license from the National Bank. However, the
advocacy efforts of AMFA members have been rewarded and now only two AMFA
members are not registered, one of which - Save the Children - is close to
registration. IOM is the only organization that has yet to register and it has
an unusual situation in that as a diplomatic mission it is extremely unusual for
it to manage an LLC. IOM is still analyzing how to incorporate the LLC
requirements into its overall structure and get approval for this unusual step.
Meanwhile, AMFA itself remains unregistered as AMFA's registration was postponed
until all AMFA members are registered. Thus, taken overall, AMFA and its members
were able to build a solid foundation on which further advancements are
possible.
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ENERGY
SOCAR expects 8% drop in oil to Novorossiisk
The volume of Azeri oil pumped through the Baku-Novorossiisk pipeline in 2006
will amount to about four million tonnes, which is eight per cent less than last
year, a source in the State Oil Company of the Azerbaijani Republic (SOCAR)
said, Interfax News Agency reported.
"Azerbaijan plans to transport at least four million tonnes through the
Baku-Novorossiisk pipeline in 2006. As of July 1, 2.6 million tonnes has been
transported through the northern pipeline, and by the end of the year we plan to
transport another 1.4 million tonnes. However, oil transport volumes by SOCAR
have not yet been finalised, everything will depend on what volume Azerbaijan
International Operating Company reserves for itself," the source said. The
source said that AIOC (the operator of the Azeri-Chirag-Gunashli fields) should
retain a certain volume of oil transport through the Baku-Novorossiisk pipe.
"We believe that the Baku-Novorossiisk pipeline, despite some transitory
losses, should be kept, to have an alternative export route. This is the only
route bypassing Georgia, and not only SOCAR, but AIOC also should support the
work of this pipeline," the source said.
The company also believes that the cost of maintaining the pipeline should be
split between SOCAR and AIOC shareholders. "At the moment AIOC compensates
the upkeep costs for the northern pipeline with reimbursement of
Azeri-Chirag-Gunashli expenditure, it said.
AIOC doubles oil production at Chirag, Gunashli
Azerbaijan International Operating Company (AIOC), the operator for
Azeri-Chirag-Gunashli fields, produced 12.013 million tonnes of oil from Azeri
and Chirag fields in the first seven months of the year, an increase of 98 per
cent from the same period last year, a company source said, Interfax News Agency
reported.
Production from Chirag totalled 4.26 million tonnes of oil in the period and
production at Azeri totalled 7.75 million tonnes. Production in July totalled
1.972 million tonnes, including 557,300 tonnes from Chirag and 1,415 million
tonnes from Azeri.
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FOREIGN LOANS
World Bank to provide 500m Euro for highway projects
The World Bank is ready to provide Azerbaijan with 500 million Euro to implement
highway projects, the country's deputy transport minister, Musa Panakhov, said
Interfax News Agency reported.
"The bank is ready to invest these resources in renovating federal
highways. The World Bank has proposed financing the continuation of the
Baku-Shemakhy-Muganly highway. The bank is also ready to participate in
renovating the Yevlakh-Beilagan-Balaken highway to the Russian border and from
Beilagan to the Iranian border," Panakhov said. These projects have an
estimated cost of 300 million Euro, he said. "But the bank has proposed 500
million Euro to rebuild these highways," he said. The World Bank is also
showing interest in financing a project to improve Baku's transport
infrastructure, Panakhov said. "The bank offered us a grant to design a
project to improve Baku's transport infrastructure. We have until the end of the
year to decide on the grant and we will start designing the project next
year," he said.
UniBank gets 1 mln GarantiBank loan facility
Azerbaijan's UniBank has received a loan facility of one million Euro from
Garantibank International N.V., UniBank said recently, Interfax News Agency
reported.
The facility will support documentary operations - confirmation of letters of
credit and guarantees - and will enable UniBank to obtain from Garantibank
International N.V. confirmation of guarantees and letters of credit with terms
of up to one year. UniBank has borrowed approximately 40 million Euro from
international financial institutions to date. The European Bank for
Reconstruction and Development (EBRD) owns 15 per cent of UniBank. Germany's DEG
is also a shareholder. The bank was ranked number 457 by assets in the CIS and
the fourth biggest of just over 40 Azerbaijani banks in the Interfax-1000: CIS
Banks rating for the first half of 2005.
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MINERALS & METALS
RusAl to finish preparing feasibility study
RusAl, one of the world's top three aluminium producers, plans to finish the
preparation of a preliminary feasibility study for the construction of an
aluminium plant in Azerbaijan by the end of 2006, the company said in a release,
New Europe reported.
"RusAl has yet to make a decision on the start of the construction of an
aluminium plant in Azerbaijan. The company is interested in considering
possibilities for the construction of a plant in the country and continues to
hold talks with the Azerbaijani government on this issue. RusAl is also working
on preparations for a preliminary feasibility study and will make a decision on
the expediency of carrying out such a project based on the results of the
study," the release says. Azerbaijani Economic Development minister Heidar
Babayev said recently that his ministry had received an official letter from
RusAl confirming the decision to begin carrying out the project in Azerbaijan.
Other subjects the two sides still need to talk about include the issue of where
aluminium produced at the plant will be shipped if the plant is built, the issue
of providing the plant with gas and electricity at advantageous prices and other
issues related to taxation, Babayev said.
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