Connect with us

Azerbaijan

The New Silk Road: Azerbaijan at the heart of the Eurasian trade corridor

SHARE:

Published

on

Azerbaijan, a Caspian republic rich in diverse natural resources, boasts a unique geographic location at the crossroads of East and West. Stability, high international authority, a favourable investment climate, and timely investments in transportation and logistics infrastructure have enabled the country to become a regional hub and an important link in the Eurasian economic landscape.

Thanks to its growing role as a bridge between Europe and Asia, Azerbaijan is rightfully called the "gateway to Asia." On one hand, this is facilitated by expanding partnerships with China, Central Asian countries, and the Middle East, while on the other hand, Azerbaijan's increasing transit and energy significance for Europe strengthens.

Azerbaijan attracts investors from around the world. The economy is stable and steadily growing. Over twenty years, the country's GDP has increased more than fourfold. Azerbaijan has reduced its external debt to less than 10% of GDP, and the poverty rate has decreased from 50% to 5.5%. Over thirty years, the volume of the investment portfolio has exceeded $310 billion, with nearly $200 billion directed to the non-oil sector. Currently, the government's key economic task is further diversification of the economy to reduce dependence on hydrocarbons. Cooperation with Central Asian countries, the Turkic and Arab worlds, and China will help fully unleash Azerbaijan's rich non-energy potential.

THE GROWING ROLE OF AZERBAIJAN FOR CENTRAL ASIAN MARKETS

Azerbaijan has strong historical and cultural ties with the countries of Central Asia (CA): Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. This partnership, besides its multifaceted development, is based on the uniqueness of each country, allowing the exploration of new facets of significant common potential. These measures are stimulated both through joint investment funds and the encouragement of individual investment projects in the private sector. Recent examples include the construction by Azerbaijani investors of a five-star hotel on the shore of Lake Issyk-Kul in Kyrgyzstan.

For Azerbaijan and the countries of CA, the rapid development of investment and trade-economic ties is a natural formation of economic interdependence, based on common roots but expanding in the context of shared interests, goals, and aspirations.

Advertisement

This cooperation finds an immediate response among business circles. At the end of 2022, Azerbaijan and Kyrgyzstan signed an agreement to establish the Azerbaijan-Kyrgyzstan Fund with a charter capital of $25 million, but already this year its capital has been increased to $100 million due to demand among Kyrgyz entrepreneurs. Joint ventures are actively being established in various sectors, such as agriculture or automotive industry. 

A ceremony of signing documents between the Republic of Azerbaijan and Kyrgyz Republic

A favorable investment and business environment created in Azerbaijan attracts CA entrepreneurs. The Uzbek company "Uzavtosanoat" in partnership with Azerbaijani counterparts has established assembly lines for Chevrolet Damas, Labo, Lacetti, Tracker, and Malibu cars in the Hajigabul Industrial Quarter. All products are manufactured in accordance with the global standards set by General Motors. The establishment of the Turkic Investment Fund, a joint investment company with Uzbekistan, and a joint investment fund with Kyrgyzstan vividly demonstrate that the countries of the region are preparing to elevate cooperation to an entirely new level with a focus on specific projects and the creation of broad opportunities for business circles.

Over the past 5 years, Azerbaijan's trade turnover with CA countries has grown 2.5 times, exceeding $1.3 billion. Playing a special role in the development of cooperation between Azerbaijan and CA is the United Nations Special Program for the Economies of Central Asia (SPECA). Committed to regional integration, Azerbaijan plays an instrumental role in this program, occupying a unique position as a bridge between CA and Europe. Azerbaijan initiated the first Summit of SPECA member countries in 25 years, which took place on November 24th last year in Baku. Recognising the importance of the Azerbaijan-CA tandem, the SPECA Multi Partner Trust Fund is being established under the auspices of the UN.  

In this partnership, Azerbaijan is important to both sides. For Europe, CA represents a growing market with a population of 80 million people. It is a region rich in natural resources which, alongside Azerbaijan, could become an important source for energy imports. Azerbaijan annually supplies billions of cubic metres of gas to Europe, and based on an agreement signed last summer, the country will start supplying electricity across the Black Sea floor. Azerbaijan will also serve as a transit point for electricity from Kazakhstan and Uzbekistan to the EU.

In turn, for CA countries, Azerbaijan is important as an export hub for supplying products, including non-oil and gas, to European markets. With vast experience in the oil and gas industry, Azerbaijan can also support the exploration and development of the energy potential of CA countries. The Kazakh side has also proposed that SOCAR consider projects in geological exploration.

Since last year, Kazakhstan has also begun to export oil through Azerbaijan, transporting via the Baku-Tbilisi-Ceyhan pipeline. Azerbaijan is a stable and reliable partner, and the high authority of official Baku on the international stage attracts CA countries.

And, of course, the cornerstone of the partnership between Azerbaijan and CA countries is transportation and logistics cooperation. The Trans-Caspian International Transport Route (TITR), also known as the Middle Corridor, passes through Azerbaijan. Starting in China, it traverses Kazakhstan, reaches the Caspian Sea, exits into Azerbaijan, and then continues to Georgia, Türkiye, and Europe. The route operates actively in both directions.

Against the backdrop of the current geopolitical situation, interest in the Middle Corridor has significantly increased. Over the past two years, the volume of freight transportation along it has more than tripled, doubling in 2022 and increasing by 65% in 2023 - from around 840,000 tons in 2021 to 2.76 million tons in 2023.

Significant investments by Azerbaijan in expanding the international transport corridors passing through its territory have not only created a vital artery for trade between Asia and Europe but also allowed for a rapid response to global challenges. This was evident during the Russian-Ukrainian war when freight flows redirected from the Northern Corridor to the Middle Corridor.

The Middle Corridor is one of the shortest routes from China to Europe. Freight transportation indicators continue to grow exponentially due to the coordinated efforts of the region's states. Participants in TITR, recognising the growing role of the corridor, are jointly working on unifying tariff policies, technical coordination, and providing through services along the route. To this end, the railway authorities of Kazakhstan, Azerbaijan, and Georgia have established a joint venture called Middle Corridor Multimodal Ltd.

The significance of the Middle Corridor is well understood by the European Union. In Brussels on January 29-30 this year, the first Investors' Forum was held as part of the Global Gateway initiative. European and international financial institutions pledged to invest €10 billion in the development of sustainable transport connections in CA, including the TITR.

The development of the Middle Corridor will also benefit other landlocked CA states interested in expanding trade with Europe. In the future, cargo shipments from China to Europe could be diversified through the construction of the China-Kyrgyzstan-Uzbekistan railway with further access to the Caspian Sea, then through Azerbaijan and onwards via the Baku-Tbilisi-Kars railway to Türkiye and Europe, or alternatively through Georgian ports on the Black Sea. Such geographical diversification reduces dependence on traditional routes, enhances competition, and lowers transportation costs. Additionally, developing connections facilitates the participation of regional countries in global value chains and contributes to the expansion of their trade.

DEVELOPMENT OF TRADE AND INVESTMENT LINKS WITH THE MIDDLE EAST

Arab countries are also interested in Azerbaijan's economic potential. Middle Eastern investors are actively investing in projects being implemented in the republic. This cooperation spans various sectors, contributing to economic and regional stability.

The economic cooperation between Azerbaijan and Arab countries can be seen as a logical continuation of Azerbaijan's cooperation with CA countries, creating a more powerful synergy for broad and effective regional partnership. It is no coincidence that at last year's SPECA Summit, the Prime Ministers of Georgia and Hungary, as well as the Secretary-General of the Gulf Cooperation Council, were invited to Azerbaijan as honorary guests. "I am confident that holding the Summit with such participants will pave the way for a broader format of economic cooperation," said Azerbaijani President Ilham Aliyev at the time.

Cooperation between Azerbaijan and Arab countries has noticeably gained momentum in recent years. This is expressed both in the expansion of trade and economic cooperation and in investment interaction.

In 2023, trade turnover with the UAE increased by 30.3%, with Saudi Arabia by 34.5%, with Qatar by 43.6%, with Algeria by 50%, and with Jordan by 58%. Tourists from the Persian Gulf countries actively vacation in Azerbaijan. Last year, the country was visited by 350,000 tourists from this region - the second largest region in terms of tourists visiting Azerbaijan after the CIS countries.

For the Arab world, Azerbaijan holds strategic value as a reliable partner facilitating broader access to European markets. For example, in February of last year, the UAE Minister of State for Foreign Trade, Thani bin Ahmed Al Zeyoudi, stated that Azerbaijan is a gateway to Eastern Europe and many other countries in the region.

Thus, Azerbaijan assists the UAE in re-exporting goods to other countries. Among the main such goods, Minister Al Zeyoudi noted automobiles, televisions, smartphones, computers, aluminum sheets, mineral oils, tires, and even printed products. Azerbaijan has also increased its exports of non-oil and gas products to the UAE, accounting for more than half of the total trade turnover between the two countries last year.

Signing of an agreement on the establishment of joint investment venture between ADQ and AIH

Relations of strategic partnership between Azerbaijan and the UAE are further solidified with the joint investment initiatives. To facilitate these mutual investment efforts, ADQ, an investment and holding company based in Abu Dhabi, and Azerbaijan Investment Holding (AIH), have announced the establishment of a joint investment venture. This venture aims to invest in key sectors of shared interest, including agriculture, technology, pharmaceuticals, and energy infrastructure. The platform will identify and leverage investment opportunities to generate sustainable financial returns. Initially, investments will focus on Azerbaijan, the UAE, and Central Asia, with the potential to expand to other regions. Both ADQ and AIH will hold a 50 percent stake in the venture, with each party committing $500 million to the initiative.

The economic ties between Azerbaijan and the Arab world are characterized by tremendous potential for both bilateral and multilateral cooperation. Azerbaijan's strategic location at the intersection of major global transportation corridors, which has become even more relevant against the backdrop of attacks in the Red Sea and the Russian-Ukrainian conflict, makes it an important center for expanding economic partnership with Arab countries. Key areas of this cooperation include agriculture, light industry, pharmaceuticals, and renewable energy sources.

Garadagh Solar PV Plant

Here are just a few examples. In October of last year, the largest solar power plant in the Caspian region and the CIS, the Garadagh Solar PV Plant with a capacity of 230 MW, opened in Azerbaijan. The project, implemented by Masdar from the UAE, has an investment value of $262 million. Another company from the UAE, ADNOC, acquired a 30% stake in the Absheron gas field, which could become another source for deliveries to Europe via the Southern Gas Corridor. During COP28 in Dubai, SOCAR (the State Oil Company of Azerbaijan) and ADNOC signed an agreement on strategic cooperation, envisaging collaboration in environmental protection, blue hydrogen, geothermal energy, and carbon emission management. Both companies also plan to collaborate in the UAE and other countries.

Official inauguration of the 230 MW Garadagh Solar PV Plant 

ACWA Power from Saudi Arabia is the first foreign investor in Azerbaijan to receive an investment promotion document in the field of renewable energy sources. Its local subsidiary will invest $245 million in the construction of the Khizi-Absheron wind farm project. The company also envisages the production of low-carbon green fertilizers, primarily urea, together with SOCAR.

Groundbreaking ceremony for “Khizi-Absheron” Wind Power Plant

And these are just some of the projects, considering the high demand from investors and the fact that Karabakh, East Zangezur, and Nakhchivan regions have been declared green energy zones. Azerbaijan's renewable energy program is not limited to solar or wind power plants. The country is actively developing its hydropower potential. For example, in the liberated territories of Karabakh and East Zangezur, hydroelectric power plants with a capacity of 170 MW have already been put into operation. Within three years, their capacity is planned to be increased to 500 MW.

BUILDING STRATEGIC ECONOMIC PARTNERSHIP WITH CHINA

Located at the crossroads of Europe and Asia, Azerbaijan serves as an ideal transportation hub for international freight carriers. To fully realize this potential, the government has invested in transportation infrastructure development for years and actively participated in international transport initiatives.

Azerbaijan was one of the first countries to support China's "Belt and Road Initiative" (BRI), aimed at improving and expanding trade routes in the Eurasian region. As a strategic player in TITR, Azerbaijan holds significant importance for the BRI initiative, especially given the current geopolitical conditions where freight carriers are compelled to seek alternative routes.

China has repeatedly emphasized both the importance of the Middle Corridor and the need to expand economic ties with Azerbaijan. During the third Belt and Road Forum for International Cooperation in Beijing in October of last year, Chinese President Xi Jinping reaffirmed China's commitment tosupporting the development of TITR. China not only intends to develop land routes but also actively integrate ports within the framework of the Maritime Silk Road, as well as accelerate the construction of the New International Land-Sea Trade Corridor.

In 2023, the trade turnover between Azerbaijan and China increased by 43.7% compared to 2022, exceeding $3.1 billion. According to the State Customs Committee of Azerbaijan, China exported goods worth $3.02 billion to the Caspian republic, which is 45% more than in 2022. Azerbaijani exports to China grew by 8.2%, whilst China is interested in further expansion of imports from Azerbaijan. This was discussed in November of last year during a meeting of the Intergovernmental Commission on Trade and Economic Cooperation between Azerbaijan and China. At that time, the Chinese side proposed the establishment of a joint group to develop investment projects, expressing interest in expanding cooperation, including in the areas of green energy and digital technologies.

In the same year, the extraordinary and plenipotentiary Ambassador of China to Azerbaijan, Guo Min, in a conversation with journalists, noted the rapid growth in the number of Chinese enterprises seeking cooperation opportunities in Azerbaijan. "Currently, active negotiations and consultations are underway on a wide range of projects, such as the production of electricity from renewable sources, energy storage, chemical industry, agriculture, logistics, and transportation," added Guo Min.

The BRI initiative will help attract significant foreign investments into Azerbaijan's infrastructure projects, such as railways, ports, and industrial parks. These investments will create jobs, improve infrastructure, and stimulate economic growth.

As a bridge between continents, Azerbaijan opens up many opportunities. The influx of investments, thriving trade partnerships, and the expansion of regional cooperation all contribute to the country's economic growth and its position as a key player on the global stage.

Azerbaijan's path as the "Gateway to Asia" is just beginning. The country continues to strengthen regional ties and participate in strategic initiatives, and its influence and prosperity will continue to grow rapidly.

Share this article:

EU Reporter publishes articles from a variety of outside sources which express a wide range of viewpoints. The positions taken in these articles are not necessarily those of EU Reporter.

Trending