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|13 December, 2018

A shared vision

Orkhan Mustafayev is the president of Ideal Concept Holding, a group of companies operating in UAE, Turkey, Azerbaijan and China. The group has seven companies involved in construction, retail, advertising, and the FMCG sectors and employs more than 500 people. He has only ever worked as an entrepreneur and holds qualifications from the UK's Oxford University, American University of Dubai and and Heriot-Watt University in Dubai.

The UAE is becoming a conduit for foreign direct investment into Azerbaijan

Taking a quick break in Baku is quickly becoming something of a trend for young Emiratis looking for a new place to explore. Designer hotels, exciting nightlife, and the new Cultural Centre are all key attractions, but it is not just tourism that is flourishing. International businesses based in Abu Dhabi and Dubai are eyeing up Azerbaijan’s alternative energy and agriculture industries with interest, and the UAE is proving to be an excellent conduit for foreign direct investment (“FDI”). But why exactly are the links between the two countries so strong?

It all starts with geography. Azerbaijan is only two and a half hours from the UAE, and with modern, well-connected airports at both ends you could breakfast in Baku and be back in Abu Dhabi for lunch. In July, both governments introduced visa-on-arrival policies and the agreement is already reaping dividends, with 30 flights per week now arriving from Azerbaijan to Abu Dhabi, Dubai and Sharjah.

There is also a history of friendship. Diplomatic relations were established in 1992, and embassies opened in Abu Dhabi and Baku in 2001 and 2011 respectively. Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai visited Azerbaijan in 2015, and the following year the Azerbaijani President, Ilham Aliyev came to the UAE. Ministers regularly travel between the two countries for working talks on matters of mutual interest.

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The similarities between the two countries are manifold. Both are stable and profitable. Both are keen to innovate, with ambitious leaders, a global outlook, and a long-term strategy for growth. Both are Muslim countries, with a tolerant attitude to other religions and an enthusiasm for international investors. Like the UAE, Azerbaijan is growing a highly educated and skilled work force - many residents speak four languages - their local tongue, Russian, Turkish and English.

Trade between the two countries is already well established, with an active Chamber of Commerce in Dubai, plus a partner in Baku. A specific trade office is set to be inaugurated in the UAE by the end of the year, with a strategic mission to encourage international investments, and unlock potential.

Dubai’s status as one of the world’s most reliable financial centres is undisputed. Thanks to the UAE’s visionary leaders, the DIFC and DMCC free zones have enabled international companies to invest offshore for more than a decade. Similarly, the government of Azerbaijan is pursuing an ambitious strategy to welcome FDI. Recently enshrined laws protect international investors, and grant them equal status to local companies. Newly-created industrial parks are exempt from custom duties and VAT, and it is becoming easier for foreigners to get licenses. Thanks to these dramatic reforms, entrepreneurs will find it easier to obtain construction permits, register property, get credit, and trade across borders.

The changes have not gone unnoticed. In October, the World Bank’s annual ‘Doing Business’ report complimented Azerbaijan, saying the country “implemented eight reforms making it easier to do business in 2017/18, a record number among the 10 top improvers”. In the World Bank’s ranking for 2019, Azerbaijan comes in at number 25 - just ahead of Austria, Thailand, Kazakhstan and Spain. Last year, it ranked 57th. 

The President of Azerbaijan says he expects the economy to receive $15 billion in foreign investment this year. So where will the money go?

Azerbaijan’s successful oil and gas industry attracts the most FDI but, just like the UAE, the government is looking to diversify. Renewable energy is an area of huge potential, and the state is already investing in solar and wind power plants.

The deputy energy minister, Samir Valiyev recently promised a new legal framework to govern alternative energy projects, and said negotiations are currently underway with foreign investors, from the UAE, China, the US and the EU. 

Hospitality in Azerbaijan is also booming. During the last five years, the number of tourists dramatically increased to 3.5 million a year - with most visiting from GCC and CIS countries. 

The government supports the hospitality sector by hosting prestigious international events; the 2015 European Games, the 4th Islamic Solidarity Games, the F1 Grand Prix each year, and soon some games at the 2020 UEFA European Football Championship. Baku is also bidding for Expo 2025 - only five years after Dubai hosts Expo 2020. Occupancy rates at hotels average 60 percent or more, so tourism is attracting interest from foreign private equity firms. The Four Seasons, FW Marriott, Hilton and Sheraton already have five-star hotels in the capital.

FDI in real estate is also growing - both in the cities and the countryside. It is easy to buy in Azerbaijan, with no need for a local sponsor. Many international companies already have a presence in Baku, bringing expertise and affluence to an already elegant city. Homes and commercial buildings can be purchased freehold, and many GCC investors are buying land, sometimes as a strategy to guarantee food security at home. 

The farms are fertile, the weather is clement, the produce is often organic, and returns are high, thanks to low cost labour, and government support.

In the past eight years, state subsidies to agriculture have almost doubled, and food is not subject to customs duties or restrictions. Azerbaijan already exports nearly $500m of food each year to Russia, and specialises in valuable, rare crops, including persimmon and indigenous pink grapes.

Those trade links to the north and east are another reason Azerbaijan is so attractive to investors coming through the UAE. The country benefits from discounted trade with other CIS nations, and an office in Baku could quickly open up new markets across Eurasia. The opportunities for foreign investment are vast.

Any opinions expressed here are the author’s own.

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© Opinion 2018

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