After the music stops in Azerbaijan

By bne IntelliNews August 2, 2012

Jahan Hoggarth, Clare Nuttall and Nicholas Watson -

Azerbaijan is an infuriating country for investors. The economy of this energy-rich, mainly Muslim nation managed to grow 9.3% even during the depths of the global economic crisis in 2009, though it's ruled over by an authoritarian regime that stamps down on any dissent and the drumbeats of war with Armenia continually rumble in the distance.

Certainly, hosting this year's Eurovision Song Contest in May helped give the country a boost to its international profile. Costing the organisers over $800m and creating a 5% "hole" in country's budget, according to a report from the Public Association for Assistance to Free Economy (PAAFE), this year's Eurovision was the most expensive in the contest's history.

Now that the stage lights are off and the last plane with Eurovision fans has departed, what's left behind? "There is a certain element of disillusionment in people. The euphoria around the Eurovision soon wore off and people saw it for what it is - a music festival with an international crowd," says Rasul Jafarov, a coordinator for Human Rights Club.

The event also put an uncomfortable spotlight on the country's pretty dreadful record on human rights and freedom of speech. There was some much publicised forced evictions of Baku residents to make way for the $134m Baku Crystal Hall where the Eurovision was held (the construction of which, according to an investigation by the Organized Crime and Corruption Reporting Project (OCCRP) and RFE/RL, personally profited the family of President Ilham Aliyev. Forced out of their homes by property developers, evicted residents claim that the compensation they were offered for their properties was 30% below the market value. Plucked out of their communities, jobs and schools, many had to move in with relatives or go abroad while waiting for their court appeals. Others could only afford to buy houses on and beyond the outskirts of Baku.

Meanwhile, attacks on journalists and opposition groups, which had subsided during the run-up to the event, resumed soon after. On July 4, police charged a prominent Azeri journalist and human rights activist, Khilal Mamedov, who is from the Talysh region that borders Iran and is home to several hundred thousand ethnic Talysh who speak their own language, with treason and "fomenting national strife", adding the charges to a previous one of drug possession in a case his lawyers say is politically motivated. "Mamedov was involved in cooperation with Iranian special services since 1992... He was giving information that could be used against Azerbaijan to Iranian intelligence," the Interior Ministry and Prosecutor-General's office said in a statement.

Mamedov faces life imprisonment if found guilty of all charges. Mamedov's lawyers call the case "absurd."

Tourists with benefits

Beyond the politics of the event, local businesses, such as taxi companies and restaurants, thrived on the sudden influx of foreign visitors to the capital. Frequented mostly by business travellers, Baku's hotels had their chance to learn what it is like to manage large crowds of tourists.

Over 30,000 credit card terminals were introduced around the country, 93% of those in Baku. "Many [local banks and businesses] knew that foreign visitors were unlikely to carry wads of cash with them," says Zohrab Ismail, director of PAAFE. "As a result, banks are now competing on transaction charges."

However, visa regulations, loosened during the Eurovision, were tightened soon after the event. "This cannot be helpful for our tourism industry. The sky-high visa fees and tight regulations are deterring potential tourists from coming to Azerbaijan. We need to work towards a sustainable, rather than one-off tourism," says Zohrab.

The economy certainly needs a boost. The oil and gas-rich country held up well during the economic crisis that hit in 2008, though has struggled as oil prices fall and European demand for its for exports decline due to the crisis there. According to the latest figures from the Azerbaijani State Statistics Committee, the country's GDP in the first half of 2012 increased by 1.5% on year, a pick-up from the first-quarter growth of 0.5%.

The non-oil part of the economy on the whole saw its total production grow by 11.3% on year in the first half of the year, whereas decreasing oil production contributed to a fall of 3% on year in total industrial output. Oil and gas condensate output in the first half of 2012 fell by 7.1% on year, while natural gas output increased by 3.1%. "The cautious upward trend [in GDP growth] is likely to continue. However, it still does not look likely that the official GDP growth projection of 5.7% for this year will be achieved. Base effects will provide some support for annual growth in the second half of the year, while at least the growth of gas production is relatively encouraging," IHS Global Insight notes.

Jaw-jaw better than war-war

A constant backdrop to all this is Azerbaijan's fraught relations with the ethnic Armenian breakaway region of Nagorno-Karabakh and its backer Armenia.

Tensions mounted again in July as Nagorno-Karabakh held presidential elections that were slammed by Azerbaijan as a "provocation". As voters in the tiny unrecognised republic voted for sitting President Bako Sahakian over his challenger Vitaly Balsanian, the wider outcome of the election was a further increase in tensions in the volatile South Caucasus region.

The day before Nagorno-Karabakh's 98,772 registered voters went to the polls, Azeri Foreign Ministry spokesman Elman Abdullayev issued a statement saying that the election "is completely contrary to the efforts of Azerbaijan and international organizations for peaceful resolution of the conflict."

Under international law, Nagorno-Karabakh remains part of Azerbaijan, although it has been de facto independent since the early 1990s, when forces backed by the Armenian army fought off an attempt to bring the enclave back under Baku's control. Although a ceasefire agreement ended the bloody war in May 1994, Armenia and Azerbaijan have never signed a peace settlement, and there is a continued threat that small-scale border skirmishes could escalate into a full-blown conflict once more.

The EU High Representative Catherine Ashton also criticised the poll. "I would like to reiterate that the European Union does not recognise the constitutional and legal framework in which they will be held," she said in a July 18 statement. "These 'elections' should not prejudice the determination of the future status of Nagorno-Karabakh in the negotiated general framework of the peaceful settlement of the conflict.

Fears of a new outbreak of war increased in the build-up to the vote. Nine soldiers were shot dead in a series of border clashes between Armenian and Azeri soldiers on June 4-5. Although there have been no further shootings since then, a higher-than-usual level of activity was reported along the line dividing Nagorno-Karabakh from Azerbaijan proper. On July 11, Azerbaijan started a week of military exercises near Nagorno-Karabakh. Speaking to APA on July 17, a spokesperson for the Azerbaijani State Civil Aviation Administration reiterated a threat to shoot down any planes violating Azeri airspace by flying to the republic's newly reconstructed Stepanakert airport.

That is a clear warning against any wider recognition of the July 19 election. Cautioning against engagement with the separatist republic, Abdullayev said that anyone visiting Nagorno-Karabakh to monitor the elections would be added to the Foreign Ministry's blacklist.

That list of enemies, both domestic and foreign, grows longer by the day.

Related Articles

bne:Chart - Russia begins to steady the ship according to latest Despair Index

Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more

EURASIA BLOG: Spectre of further devaluation stalks Azerbaijan

bne IntelliNews -   That President Ilham Aliyev's party, the New Azerbaijan Party (YAP), won the November 1 parliamentary elections by a landslide took no-one by surprise: YAP has not lost a single ... more

COMMENT: Fading glow of Islamic finance calls for fresh thinking

Gary Kleiman of Kleiman International - Islamic finance, once hailed in the wake of the 2008 global financial crisis as an answer to the speculative excesses of Western banking, ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.