Azerbaijan's expectations are high

Jun 15, 2001 02:00 AM

The Caspian Oil and Gas 2001 exhibition and conference only confirmed the aspiration of foreign companies to continue with their investments in Azerbaijan's oil and gas sectors. People are talking about the second oil boom. Senior officials, who say that the level of investment in the country will sharply increase, are also adding oil to the flames. Natiq Aliyev, the president of SOCAR, spoke about the new oil boom recently. Expectations are high.
We should point out that expectations for the second oil boom, much better than the first one, in Azerbaijan are quite realistic and statements by officials attest to this: About $ 3.2 bn were invested in Azerbaijan during recent few years. This is not a small sum for a country with 8 mm population. If we take into consideration that this figure is going to grow by $ 2.5 bn for every year, there is ground for optimism.
However, one should not mix factors like investments in the oil and gas sector, the level of population's well-being and the growth of the country's economy as a whole. These are three different factors. Of course, there is a link between them, however, one should not expect that the average level of salary in the country will sharply grow (read: growth of living standards) as a result of an increase in investment.

It is also naive to assume that the second oil boom will lead to the development of non-oil sector. The experience of previous years clearly demonstrated that the link between them is rather loose. Careful analysis of the foreign companies' activities show that they invest only in specific sectors.
For example, employees of the companies are rarely accommodated in hotels and usually live in rented private flats. Hard currency has helped to raise welfare of flat owners. Another example is that foreign companies employ local specialists and provide a stable income. Thus, they help to reduce unemployment. Foreigners purchase imported goods and in doing so increase Azerbaijan's foreign trade turnover.
However, allthese do not reflect the direct link between the investment and the country's general economic development. For example, one could not speak about the development of food and light industries in Azerbaijan. The state gained some income from renting premises to foreign companies. The service industry, advertising and business sectors, and other associate firms developed, i.e. a number of small and medium-size local businessmen have been established.
The income from the oil production contributed to a rise in pension and allowances to some categories of civil workers. The head of state raised salaries of the government officials on the bases of the oil fund. At the same time, the budget for the year 2000 ended with a minimum deficit.
Azerbaijan also benefits from the presence of companies like Statoil, Chevron, BP, LUKoil, Conoco, TotalFinaElf. The presence of foreign companies adds to Azerbaijan's prestige. Like a locomotive these companies pull smaller foreign firms and not only oil firms.

Let's turn to the second wave of investment. One should not expect that Baku's population (the first oil boom did not affect regions at all) will get a similar investment like the first wave of foreign investment. The state will not be able to have extra income from renting premises. The companies will not expand their personnel. Only companies that intend to expand their activities might employ more people, like LUKoil.
The only sector with potential for growth is the oil machine building industry of Azerbaijan. This is realistic. But only if the government will pay a special attention to the development of this sphere. Foreigners will hardly be interested to cooperate with the local machine building enterprises. They have only oil and gas interests in Azerbaijan and pipes for the main export pipeline will be brought from abroad.
It is understandable that the government cannot tell foreign firms which equipment they have to buy. As a partner in the oil projects, SOCAR's rights are restricted by the percentage of its involvement in every contract. If our machine building industry manages to be competitive, SOCAR's voice in favour of buying the local products for the implementation of projects will be heard. But the only condition for this is a speedy privatisation of the oil machine building enterprises.
Privatisation will help to attract the attention of foreign investors to the metallurgical industry. This means new jobs and taxes to the budget. This is a factor which fully depends on the government's economic policy...

Source: Ekho
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