“Until decline in oil prices Azerbaijan’s macroeconomic indicators were one the best in the Post-Soviet region with low debt to GDP ratio, stable local currency, accumulation of significant reserves in State Oil Fund and Central Bank. However, with drop in oil prices situation is changing, revenues and reserves start declining. That makes Azerbaijan to look for new streams of revenue or investments into the country”, Vugar Akhundov, PwC Deals director in charge of debt and capital advisory, mergers and acquisitions, financial restructuring and transaction support services, said.
According to him, Azerbaijan has accumulated significant capital for last 10 years and supported growth of non-oil gas sector mainly by its own internal capital: “The question I sometimes come across whether the accumulated wealth is sufficient for internal growth in non-oil sector? I believe we need to consider it from Qualitative and Quantitative aspects. If we look at it from quantitative aspects, state owned entities require a lot of investments to update old infrastructure and in this regards the state is leveraging up significantly in recent years to support state-owned entities. Azerbaijan’s private sector hasn’t grown up to the scale where large investments are required. Non-oil private sector’s stake in the economy is still very small. However, if we take both state owned entities and private sector, yes, Azerbaijan still needs foreign capital to sustain non-oil economy.
However, I would like to concentrate more on qualitative aspect of the capital and the value it brings. Despite significant wealth accumulation in the country there’s no free flow of internal capital into most demanding industries and businesses. Unfortunately, we inherited financial infrastructure and institutions from Soviet Union which is not built for market economy. The lack of these institutions and financial infrastructure make internal capital not liquid and makes it unreliable for supporting the real economy. To summarize, internal capital is not reliable from qualitative aspect. Therefore, the question come up is whether foreign capital can help. In my view and experience, foreign capital helps a lot in this aspect. I would say that it’s not that much the capital itself, but the approach of western institutions lending or investing foreign capital makes the companies more efficient and assists them to become competitive in the local market and internationally. So the summary of my first point, yes, Azerbaijan needs foreign capital, but not only as a mean of funding, more supporting the companies to become more efficient”.
Answering the question “Are Azerbaijani firms attractive for foreign capital and if there are foreign institutions willing to lend/invest into Azerbaijani market?”, he said: “Once I visited Baku together with big business delegation from the UK headed by the Lord Mayor of the City of London. One of the Mayor’s questions was what the country’s policy is and where it’s heading? The state’s recent efforts on putting together strategic road map shows the country understands that it needs to go through transformation and gives good signals to the international market. Other points which are considered by international investors is that inflow of billions of petrodollars into Azeri economy somehow penetrated to businesses and population. It helped businesses to grow and achieve certain scale. Azerbaijan’s geo political location makes it interesting both for European and Asian firms. We work a lot with investors from Europe, US, Asia, Middle East, CIS, and all of them feel comfortable to invest into Azerbaijan. Specifically, since sanction to Russia, western firms need to diversify their portfolio allocation, and the ones which need CIS allocation Azerbaijan and Kazakhstan are the best choices”.
“Moreover, the country has a lot of gaps in the economy which needs to be taken by efficient companies. The companies tapping into these opportunities have very good potential”, he added.
Akhundov believes Azerbaijan will benefit from globalization trends and will find its deserved place in the global economy.