Jahan Hoggarth in Paris -
While businesses are figuring out what to make of the investment opportunities in Azerbaijan, the country is hard at work at finding ways to attract investors and encourage the growth of its non-oil sector.
Since 2003, there's existed the "one-stop-shop" investment agency Azpromo, which was set up by the Azerbaijani government to provide international investors with knowledge about the investment opportunities and market characteristics of the country. To help things along, the Azerbaijan Investment Company (AIC), a state-owned investment fund, was formed in 2006.
Overseen by the Minister of Economic Development, AIC's primary mission is to assist the development of the non-oil sector via investments into greenfield and brownfield projects in Azerbaijan. By putting money in such projects, the authorities are trying to encourage the growth of the domestic capital market - a key ingredient for attracting a wider range of investors. "We encourage competitiveness through innovations and know-how in the non-carbon sectors. We are also very selective of the product we invest in, which can be both the established industries aiming to diversify their output, or the projects that have been created to design a completely new industry," Ilham Aliyev, deputy executive director of AIC (and no relation to the president), told the "Business Forum 2013", organised by The European Azerbaijan Society, that was held in Paris in March.
Worth over $1bn, AIC's investment portfolio ranges from agricultural and alternative energy to heavy industry and financial projects. "In addition to investing directly in business, we also operate as a fund of funds, with the pool of international investments and we are proud to partner up with globally renowned investment bodies, such as the European Bank for Reconstruction and Development (EBRD), in almost all of our projects," says Aliyev.
Together with the Islamic Development Bank and Islamic Corporation for the Development of the Private Sector, AIC is involved in one of the country's biggest projects in the financial sector - the Caspian International Investment Company, which acts as a joint equity fund. Based on Sharia principles, the fund was created for investments in the non-oil sector and to attract prominent institutional investors from the Middle East.
One of AIC's largest current projects is the construction of the "only modern shipbuilding and ship repair facility on the Caspian Sea." The project - owned by AIC, state oil and gas firm Socar, and Singapore's Keppel Offshore and Marine Company - the project is seen as crucial for the future of country's economy. "Azerbaijan needs such a shipbuilding facility," says Afgan Isayev, director of Socar Georgia investment and a former executive director of AIC.
Awarded with a 25-year contract, Keppel is expected to train local experts who will eventually take over the management of the facility. Worth $400m, the shipyard will supply Azerbaijan and other countries bordering on the Caspian Sea with new ships and large tankers, especially important in this oil-producing region.
Food and energy
The much-needed economic diversification in Azerbaijan means a lot of cash is needed for the non-oil sector. That includes finding and developing new sources of green energy, such as solar and wind, while AIC is also looking to invest in recycling projects, including the recycling of tires, car batteries and paper.
Playing off Azerbaijan's favourable geographical location and the wide range of agricultural produce available, there's good potential in food processing and packaging. Some of these projects can turn a historically imported product into a locally produced export, as was the case with salt. In 2010, AIC teamed up with Azersun Holding, the country's largest agricultural firm, to develop the first salt production facility in Azerbaijan using local raw materials.
Logistics is another sector of interest to AIC, as Azerbaijan's advantageous geographical location also provides the potential for turning the country into a regional transport hub.
When choosing where to invest, Aliyev says the AIC requires projects and companies that must be fully compliant with international financial reporting standards and adhere to corporate governance best practices.
Once the new project achieves a successful track record, AIC sells out of the project in order to reinvest the money into new enterprises. "When we exit a project, we follow clear exit strategy guidelines agreed with the co-investors at the onset of the project. As a company with the state-owned investment fund, we are here to encourage businesses. And if the investors are looking for the next big thing in Azerbaijan, AIC could be their potential partner," says Aliyev.
While many parts of the world continue to be squeezed by the economic crisis, Isayev insists Azerbaijan has a lot to offer. "The crisis made us more efficient in managing our economy. For this reason Azerbaijan was able to propel itself into a position as one of the top destinations for foreign investment. This is also boosted by its rich natural resource reserves that are great for local production. Azerbaijan has become the most attractive country in the region due to its political, economic and social stability."
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