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The Azeri miracle

The Azeri miracle

Nicolas Sarkis, founder and chief executive of AlphaOne Partners LLP, puts the spotlight on the social, political and economic development taking place in a country that seldom receives much recognition from the outside world

The Azeri miracle
Business

The Eurovision Song Contest is famous for producing unexpected winners. Nevertheless, the triumph of Azerbaijan in the 2011 competition was surely one of its most spectacular surprises yet. Ell & Nikki – a rather glamorous young Azeri couple – came out ahead of rival acts from 42 other nations with Running Scared, a wholesome ballad of love, performed in English and composed by a team of Swedes.

Ell & Nikki’s victory gave a Europewide audience of 120 million people a rare glimpse of a country that many of them might previously have struggled to find on the map. It showed Azeri society in a refreshingly positive light: youthful, modern and receptive to other cultures. It also awarded their homeland the privilege of hosting the 2012 contest, which duly took place in Baku’s Crystal Hall, a gleaming new €140-million venue that symbolises the nation’s economic advance over recent years.

Azerbaijan’s achievements – about which more in a moment – seldom receive much recognition outside its neighbourhood, however. This is partly understandable. Comparable in size and population to Austria and sharing a border with Iran, Azerbaijan can seem small and geographically remote to Western Europeans and Americans. Far less excusable is that such little coverage as the country does actually get in these places tends to be sometimes negative and fails to acknowledge its present and future importance to the West.

A better understanding of Azerbaijan would benefit all concerned. Like all nations, emerging and developed alike, it is not without shortcomings. To focus almost exclusively upon these, however, is misleading. The country spent most of the 20th century subsumed within the Soviet empire. Since regaining its independence in 1991, it has made great strides in undoing much of the damaging legacy of communism. Ignoring this progress and Azerbaijan’s great potential also risks blinding us to the opportunities it offers.

By any standards, Azerbaijan’s recent economic development is impressive. In the decade to 2010, its gross domestic product (GDP) grew at a compound annual rate of 13.9 per cent a year after inflation. Meanwhile, China, universally regarded as the powerhouse of the major emerging-market economies, achieved real annualised growth of just 9.3 per cent over the same period.

Much of this tremendous performance is owed to its abundant natural resources. Azerbaijan extracted more than a million barrels of crude oil from the ground every day in 2011 and sits atop proven reserves of seven billion further barrels. The country is also rich in natural gas, having made significant new discoveries just lately. French energy giant Total confirmed a find of up to 300 billion cubic metres in July 2012.

This mineral wealth is not merely vital to Azerbaijan’s future prosperity. It could well make it an important supplier of energy to Europe. Currently, Azeri natural gas serves the domestic market and nearby neighbours Georgia and Turkey. However, the European Union is keen to reduce its present reliance on Russia for gas, which is politely termed a “strategic vulnerability”.  The mooted construction of a pipeline running through Turkey and up into Austria could make this hope a reality.

The economic transformation of Azerbaijan is most visible in Baku. Having enjoyed the reputation in pre-Soviet days for being the “Paris of the East”, the capital is undergoing a renaissance. As well as a proliferation of up-market boutiques and restaurants, new museums and other cultural venues are sprouting up. There is even a plan to construct the world’s tallest skyscraper on an artificial island just off Baku’s shoreline.

Much more importantly, though, rapid economic growth has clearly translated into improved living standards for the wider Azeri population. In 2003, almost 45 per cent of the Azeri population was classified as living in poverty. This figure had dropped to 7.6 per cent by the end of 2011. Between 2004 and 2009, household incomes doubled in real terms, while the minimum pension quadrupled.

Naturally, there remains more to be done. As in much of the former Soviet Union, corruption has made life harder both for business folk and for ordinary citizens. The Azeri government has, however, shown resolve in tackling this problem. A high-profile campaign in February 2011 resulted in many unscrupulous bureaucrats being turfed out. In the wake of the crackdown, the solicitation of bribes is reported to have declined.

Azerbaijan clearly understands that it needs to diversify its economy away from oil and gas. Taxes and other revenues from the energy industry contributed the lion’s share of the state’s takings in 2011. In response, the authorities are trying to encourage the emergence of other sectors, including tourism, telecoms and information technology. Around three-quarters of total development spending last year, therefore, was devoted to non-energy sectors.

Further business-friendly policies should aid the effort to diversify the economy. Azerbaijan already scores above average for economic freedom among countries in its region, according to the Heritage Foundation, a conservative US think-tank. Just two decades after communism, the private sector accounts for 85 per cent of GDP and employs more than two-thirds of the workforce. The tax system has already been simplified and tax rates are set to decline further.

The Azeri achievement extends beyond the economic realm, however. Given its often troubled past, both distant and recent, the Azerbaijan of today is a stable and peaceful place. While the collapse of the Soviet Union restored its independence, the country nevertheless suffered a traumatic period of transition, including the massive displacement of Azeri people in the region and the occupation of large swathes of its soil.

Like neighbouring Turkey, with which it has deep ancestral and cultural ties, Azerbaijan has an admirably strong tradition of secularism. Although the large majority of its population of nine million are Shi’ite Muslims, the constitution enshrines both secularism and religious freedom. The constitution also protects the rights of other minorities, such as different ethnicities. Talysh, Avars, Russians and Jews are represented both in parliament and in government.

In keeping with this secular tradition, Azeri women rarely cover their hair or faces. Moreover, women play a vital part in the workforce, including in public life. One in six parliamentarians is female, as are two of the country’s most senior judges, including the chief justice of the Supreme Court.

No one embodies the role of women better than Mehriban Aliyeva, the current First Lady and herself a lawmaker. Not only does she play a very important and active role in the country’s Parliament, but she also heads the Heydar Aliyev Foundation, a highly regarded charitable foundation whose aim is to develop and promote education, health systems and culture.

Just as Azerbaijan has embraced foreign trade and inward investment in recent years, it also scores well for its openness to the outside world more generally. Reflecting the multitude of foreign influences in the country throughout history, most Azeris are very comfortable with at least one other language, especially Turkish, Russian and English.

These undeniably positive aspects of Azerbaijan, as well as its stability and prosperity, are almost entirely overlooked in the West. One possible explanation is straightforward ignorance. Many of the country’s external critics have never set foot there and tend to regurgitate the same limited pool of material when denouncing Azerbaijan and its government. More likely, though, is that acknowledging the nation’s strengths would undermine the credibility of their denunciations.

Despite its obvious successes in transforming the economy and maintaining stability, Azerbaijan’s government is still sometimes a target of Western detractors. While the country holds regular elections at all levels, various US lobby groups argue that these have failed to meet international standards. The same bodies also complain of various alleged deficiencies in civil liberties.

However, Azerbaijan is freer and more politically diverse than is routinely portrayed in the West. It has more than 50 registered political parties, and in excess of 3,000 newspapers and journals. In contrast to genuinely unfree nations, there are no restrictions on which internet sites Azeris can visit or on receiving foreign satellite broadcasts. Even critics acknowledge that Azerbaijan enjoys better personal autonomy and individual rights than many of the states to which it is supposedly similar.

At around the time of the Baku Eurovision Song Contest in 2012, British campaigners seized the opportunity to complain about the treatment of gay people in Azerbaijan. But, unlike in many parts of the British Commonwealth, for example, homosexuality is actually legal under Azeri law. And, while open displays of affection between same-sex couples would not meet with approval there, the same was true across much of Western Europe within fairly recent memory.

By contrast, the most egregious abuses of human rights in Azerbaijan, perpetrated by foreign nations, have failed to attract anything like the Western attention they deserve. In February 1992, several hundred Azeri civilians were massacred by Armenian troops in the town of Khojaly. And, despite a ceasefire since 1994, the stand-off with Armenia over the Azeri region of Nagorno-Karabakh remains unresolved. Armenian-sponsored forces continue to occupy Azeri soil, including territory outside the self-styled independent Republic of Nagorno-Karabakh.

Encouraging a lasting resolution of this “frozen conflict” in the Nagorno-Karabakh region would surely be the best contribution that the outside world could now make to Azerbaijan’s ongoing development. As a key future supplier of energy to Europe and already a staunch supporter of NATO, Azerbaijan’s continued stability and prosperity are very much in the West’s interests. Now that is yet another Azeri tune worthy of a wider audience.

Nicolas Sarkis is the author of Fear and Greed.

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