Lithuania-based think tank after Ronald Reagan House has published a report ‘South Caucasus 2008-2013 – economic and political development of Azerbaijan, Georgia and Armenia.’
Justas Sireika in his report titled South Caucasus 2008-2013 – economic and political development of Azerbaijan, Georgia and Armenia’, notes that South Caucasus region has always been a scene for great historic events. Located at the cross-roads of great powers, Azerbaijan also possesses natural resources – oil and gas which are valuable and important from strategic standpoint.
Azerbaijan, Georgia and Armenia differ for cultural and historic peculiarities and economic policies they have chosen and domestic and foreign political orientation. All three states are at the center of conflict of interests of regional and global powers.
Sireika noted difference in approaches of foreign political actors to each of the South Caucasian states. Comparing these three states, the author highlights similarities, such as common Soviet past, common dilemma in the way of economic and social development, the vision of national security.
“The Nagorno-Karabakh conflict between Azerbaijan and Armenia, Georgia-South Ossetia and Georgia-Abkhazia disputes (as well as the complex interests of the third parties involved) shape the political and economic landscape in South Caucasus,” the expert says in his article.
“While Armenia felt the worst of the global financial crisis, Azerbaijan not only absorbed the economic shock unscathed, but also heavily invested abroad. Georgia, still bleeding after losing two takeaway regions, has seen the government change. The impact of the global financial crisis on Azerbaijan, unlike on its neighbours or on Central and Eastern European countries, was rather limited and delayed. The country has not experienced a sharp drop in GDP and the living standards of the local population, even despite the problem of one million internally displaced persons and refugees, continued to improve significantly, the report says.
“The main reasons behind the economic growth in the time of global decline are Azerbaijan’s vast hydrocarbon reserves and the state’s prudent strategy of managing the petrodollar flows into the country.”
“During the last decade Azerbaijan maintained an impressive economic growth that averaged almost 14 percent annually. This is direct effect of what is known in Azerbaijan as the “Contract of the Century” – an agreement signed in 1994 between the state of Azerbaijan and the Western Oil Consortium of 13 oil companies. The Production Sharing Agreement that effectively opened Azerbaijan’s oil reserves to the world transformed the country’s economy beyond recognition,” the expert noted.
“Hard currency flow into Azerbaijan’s economy significantly increased since the completion of oil (Baku-Tbilisi-Ceyhan) and gas (Baku-Tbilisi-Erzurum) pipelines via Georgia to Turkey in 2005 and 2007 respectively. Prior to that, during the first half of the 2000s, Azerbaijan successfully attracted massive foreign investments, most of which were directed toward oil extraction infrastructure.” Huge hydrocarbon-driven trade surplus allowed Azerbaijan to pile up foreign currency reserves and foreign assets equal to no less than 65 percent of GDP.”
“Poverty in Azerbaijan dropped from 49 percent in 2001 to 6 percent in 2012. Over the last years Azerbaijan was rapidly improving in terms of competitiveness. In the latest Global Competitiveness Report 2013-2014, published by the World Economic Forum (WEF), competitiveness of the country’s economy is ranked 39th out of 144 states,” the Lithuanian expert says.
“Poverty in Azerbaijan dropped from 49 percent in 2001 to 6 percent in 2012. It must be emphasized that all the revenues in connection with hydrocarbon resources are flowing into a special purpose state organisation SOFAZ (State Oil Fund of Azerbaijan) which was established by the President of Azerbaijan Heydar Aliyev back in 1999. There is understandable concern in Azerbaijan that uncontrolled inflow of hydrocarbon-related revenues can potentially overheat and harm the country’s economy. Therefore SOFAZ is used as a macroeconomic management tool either to channel energy resource-generated revenues toward public spending or to accumulate it in a reserve fund.”
“Driven by the aim to expand non-energy sectors of the economy, Azerbaijan in 2010 adopted the state programme to advance the IT and communication sectors with an emphasis to the state’s very own space program. As Azerbaijan’s President Ilham Aliyev is willing to achieve the goal of doubling the size of non-energy sector in the economy in the next decade, the government is working to transform the country into a regional hub of transit and services. The new Baku-Tbilisi-Kars railway, for example, is planned to connect Turkey, South Caucasus and Central Asia with European Rail,” according to the report.
“Because of energy lever Azerbaijan was capable to successfully balance the interests of three different powers - the U.S., Russia and Iran. This year Moscow supplied Baku with 1 billion USD arms shipment while Azerbaijani SOCAR and Russian Rosneft signed a deal to establish a joint venture.”
“Over the last years Azerbaijan maintained comparatively close relations to the EU. Shah Deniz consortium selected the Trans-Adriatic Pipeline (TAP) to be implemented in order to supply the South European countries with Azerbaijan’s natural gas, there are good prospects for increased partnership between Baku and Brussels.”
As to Armenia, the author attaches a special importance to Nagorno-Karabakh issue. The author believes that
“Sireika believes that the background behind Armenia’s deep economic abyss is more political than economic. A landlocked country with closed Turkish and Azerbaijani borders, Armenia is especially susceptible to Russian economic perturbations. Open economy needs open borders, not isolation.
“The central role of Russia in Armenia is preserved not only by direct presence of the troops but also through a membership in Collective Security Treaty Organisation (CSTO). Even though Armenia was known for its involvement in the EU’s Eastern Partnership (EaP) initiative, in the beginning of September 2013 the country announced its decision to join the Russian-led Customs Union (CU). Since the borders with Turkey and Azerbaijan remain sealed, Armenia traditionally relies on Russia. After the presidential election in February this year expectedly ended with Serzh Sargsyan’s victory that effectively secured the second term for the candidate, the country is set to continue to live with no significant political changes.”
“Georgia continued to carry out democratic reforms in cooperation with the West. However, after the parliamentary elections in 2012, which resulted in Bidzina Ivanishvili’s victory, the situation in Georgia’s political arena began to change. . What is more, representatives of the new government, including Ivanishvili, on several cases made careful statements about the possibility to re-approach Russia.”
“Although on-going structural reforms, comparatively low level of corruption and business- environment makes Georgia attractive to foreign investors, tense political situation after the 2012 parliamentary elections and two unresolved territorial conflicts create uncertainty about the prospects of economic stability in the country. This February Georgia will hold presidential elections, the results of which can lead to unexpected changes. The external actors are closely monitoring the situation in the country,” the author notes.
At the end of the report, Sireika notes that, despite the global economic crisis, the share of GDP from the non-energy sector of Azerbaijan's economy has gradually increased. If this trend persists, it is more than plausible that – all thanks to the careful management of oil revenue – Azerbaijan will largely become a non-oil dependent modern economy by the end of this decade. Summing up the results of successful domestic and foreign policy of Azerbaijan, the author notes that President Ilham Aliyev has great chances for re-election to a third term.
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