FX Excursions

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Baku: Business Is On The Rise

Jun 15, 2004
2004 / June-July 2004

Flying from Moscow to Baku, an American writing a postcard asks her companion: “How do you spell Azerbaijan?” A Russian businessman sitting across the aisle volunteers the answer: “Easy. You spell it: O-I-L.”

It is a joke, of course, but an apt one. As the plane banks over the Caspian Sea on final approach, it provides a bird’s-eye view of dozens of offshore oil derricks. On arrival, the opening of the aircraft’s doors lets in the thick stench of the region’s essential commodity. Baku, you instantly discover, smells of oil-literally and figuratively.

Oil has flowed through this city for more than 2,500 years. The earliest inhabitants extracted it in leather buckets from hand-dug wells, and for centuries there was little advancement in their methods. It wasn’t until the 19th century that the economic potential of the black gold was fully realized by industrialization. By the dawn of the 20th century, Azerbaijan was supplying half the world’s oil. John D. Rockefeller was one of many foreign investors with significant interests here.

The legacy of that boom can still be seen. The city’s waterfront is lined with the lavish mansions of the first local oil barons. The houses face the source of their wealth: the Caspian Sea. Today it is estimated that this vast saltwater lake-the biggest lake in the world-may hold oil reserves equivalent to those of the United States. Although four other countries-Russia, Kazakhstan, Turkmenistan and Iran-have shorelines, Azerbaijan is ideally positioned to reap huge rewards.

With a new pipeline to the Mediterranean Sea, via Georgia and Turkey, due to come on line in 2005, Baku will soon have the capability to export a million barrels a day. Work is also under way on gas pipelines to channel the country’s bountiful reserves of natural gas to Turkey and Russia.

A recent report projected that Azerbaijan has the potential to generate up to $10 billion of business opportunities over the next three years. Gross domestic product is currently growing at around 10 percent annually; the local currency, the Manat, is stable; and inflation is low. The future appears to be exceptionally rosy. The present is less so.

The transition to capitalism from the command economy of the former U.S.S.R. has been slow and painful. As the former Soviet Union entered its death throes, the fledgling Republic of Azerbaijan became embroiled in a war with Armenia over the disputed territory of Nagorno-Karabakh. When the guns fell silent, 20 percent of Azerbaijan was under Armenian occupation and 900,000 Azerbaijanis were refugees in their own country.

It is estimated that displaced people currently account for one-eighth of Baku’s 1.8 million inhabitants. In the five years immediately after independence was formerly declared in 1991, the Azerbaijani economy contracted by 60 percent and public services were strained beyond the breaking point. More than half of the country’s population now lives below the poverty line.

The frayed city you see today is the product of those difficult years. It will take time to complete the recovery, but the process offers a wealth of opportunities for foreign investment.

The energy sector attracts the majority of international capital, but there are also burgeoning opportunities in export/import, construction, engineering, food production, financial services, telecommunications and agricultural supplies.

As with any new frontier, enormous potential is counterbalanced by a host of hazards and potential pitfalls. Doing business in Baku can be challenging, with a raft of complex and often contradictory regulations to negotiate, and with only patchy protection from the weak legal system. Corruption continues to be a problem, though it is being progressively tackled by government legislation.

English is not widely spoken on the streets, but it is increasingly used in the boardrooms. Nevertheless, it is often worth hiring an interpreter-expect to pay $50 to $80 per day.

Although it is a Muslim country (the population is 68 percent Shia Muslim, 28 percent Sunni Muslim, 3 percent Christian and 1 percent Jewish), Azerbaijan is relatively liberal. Alcohol is legal, and the workweek follows the Western pattern: Monday to Friday. With the waning of Russian influence, the Cyrillic alphabet has been ditched in favor of the Latin standard-you may not be able to understand the street signs, but at least you can read them.

Through centuries of periodic upheaval, one part of Baku has remained constant: the Inner City. Protected by formidable medieval walls, it is an ancient district of narrow alleys, mosques and towers dating back as far as the eighth century.

The old quarter is a fascinating place to visit, though it can be quite a challenge to spend time there without buying a carpet. If you want to hone your negotiating skills, there is nowhere better than in one of the many carpet shops. There, plied with an endless supply of local tea, you can test yourself against some of the world’s most persuasive salesmen.

The true focal point of Baku is the crescent-shaped waterfront. In the early evening, mingle with couples and families out for a stroll. The Caspian stretches to the horizon, with only the silhouetted oil derricks disrupting what could easily be an ocean vista.

But, vast as it is, the landlocked Caspian has been degraded by years of environmental negligence. The water lapping on the shore is oily; the stench never goes away. This body of water is one of the most polluted on earth. Whatever else you do in Baku, you certainly won’t be going for a swim.

On land, the man-made troubles are just as severe. The Caucasus region, which consists of Azerbaijan, Georgia and Armenia, is highly volatile. Any long-term investment here must take into account the possibility of sudden political turbulence.

And yet, for all the problems, foreigners have always found riches in Baku. Marco Polo traded here, and later the Zoroastrians came from India, found plumes of natural gas burning out of the ground, and built temples to worship the flames.

Gas and oil, and the money they generate, continue to attract outsiders. With the gradual modernizing of the infrastructure, and massive revenue soon to be on tap, Baku’s flame is burning ever brighter.


American nationals doing business in Azerbaijan require a business visa for which an invitation from a company or business partner in Azerbaijan must be submitted to the Foreign Ministry in Baku on your behalf in advance of your application. A single-entry 90-day visa costs $90, while a multiple-entry one-year visa costs $250. For details, contact:

The Embassy of the Republic of Azerbaijan
(Attn: Consular Section), 2741 34th St. N.W.
Washington, DC 20008, tel 202 337 5912
fax 202 337 5913

Additional Sources of Information

United States-Azerbaijan Chamber of Commerce,
1212 Potomac St. N.W.,Washington, D.C. 20007,
tel 202 333 8702, fax 202 333 8703, www.usacc.org

Azerbaijan International Magazine,
P.O. Box 5217, Sherman Oaks, CA 91413, tel 310
440 0800, fax 310 440 0801, www.azer.org.
Useful for background information and contacts


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