Overseas Business Risk - Azerbaijan

Information on key security and political risks which UK businesses may face when operating in Azerbaijan.

Political and Economic

Overview

Azerbaijan is the largest and most prosperous of the South Caucasus states, and is roughly the size of Scotland. It is home to about 9 million people and a number of different ethnic groups. The country borders Russia and Iran on the Caspian Sea, as well as Georgia, Armenia and Turkey. As a consequence of Azerbaijan’s conflict with Armenia, Nagorno-Karabagh, about 14% of the country’s territory has been occupied by Armenia since 1994 and 10% of Azerbaijan’s population displaced.

Azerbaijani is the official language of Azerbaijan but Russian is also still widely used, and most people (at least in Baku) are bilingual. English is also quite widely spoken and understood in Baku, although fewer people speak English outside the capital.

Azerbaijan’s national identity, based on citizenship, is open and inclusive. The cultural and social rights of ethnic minorities are protected in an attempt to prevent separatist sentiments. Refugees and Internally Displaced Persons are well integrated into society.

Azerbaijan is a secular state, yet state and religious organisations coexist in a carefully orchestrated balance. New churches and synagogues were built in 2007-2008 to accommodate the needs of the religious minorities.

Economic Overview

Azerbaijan has grown rapidly in recent years and has weathered the recent economic crisis relatively well. However in 2011 the economy struggled, growing by only 0.2% mostly due to a relative drop in oil

The defence of the dollar “peg” by the Central Bank helped maintain confidence in the currency and the financial sector. However, effects of the economic crisis are being felt, particularly in the non-oil sector. The strong Azeri Manat (local currency) – as other currencies devalue – is making agricultural and industrial exports uncompetitive. Consumer lending has plummeted due to bank liquidity problems; the real estate market is frozen due to over-supply; remittances from Azeris working in Russia and Turkey are down, and unemployment is up.

Over the medium term, GDP growth will remain largely dependent on developments in the oil and gas sectors. In 2012, GDP is expected to grow by 3.1%,and 1.9% in 2013. However It may accelerate somewhat in future years - as the Shah Deniz II gas field comes into operation and a gas pipeline to transport the gas to Europe is constructed - and should stabilize, unless new oil and gas reserves are discovered (eg Shafag-Asiman).

The progress of structural reform has been uneven. Large transition challenges remain across most sectors, with the exception of agribusiness, natural resources and transport. The financial sector is dominated by a large state-owned bank and a number of smaller, undercapitalized and non-transparent banks. State companies continue to dominate many key industries, including the oil, gas, electricity and telecommunications sectors. The private sector suffers from bureaucratic hurdles in registration and licensing procedures, plus a high level of corruption which particularly affects small and medium-sized enterprises (SMEs).

More information on political risk, including political demonstrations, is available in FCO Travel Advice.

Business and Human Rights

Through its membership of the OSCE and Council of Europe, Azerbaijan has committed to upholding international standards with regard to human rights.  However, despite improvements in a number of areas over the last 20 years, Azerbaijan's overall record remains an area of concern. Reports by a number of respect international human rights groups have highlighted the independence of judiciary; inconsistent application of laws; Government control/influence over large sections of the media; and widespread mistrust of the police/law enforcement as areas of concern.

With regards to the International Labour Organisation (ILO), Azerbaijan joined in 1992 and in the years since has benefited from a series ILO technical assistance programs aimed at improving national labour and social protection legislation, strengthening institutional development, enhancing professional skills and the promoting employment and self-employment. Azerbaijan has thus far ratified 57 ILO Conventions, including all eight fundamental and the four priority Conventions.

Industrial relations within the country are maintained through a process of dialogue between the Ministry of Labour and Social Protection, Confederation of Employers, National Confederation of Trade Unions. Similar to the Trade Unions Congress, the Confederation of Trade Unions is an umbrella organisation covering 29 sectoral trade unions and reportedly has 98.3% of the working population has members. Amongst the Confederation's members the oil workers’ trade unions are the most active.

Bribery and Corruption

Businessman working at a computer

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Corruption is fairly much pervasive throughout all levels of Azeri society, and although officials reportedly made improvements in the business sector and raised awareness about the need to combat corruption in 2012, Azerbaijan was ranked 139 of 176 countries in Transparency International’s corruption perception index (CPI).

A crack-down by the authorities on corruption during the first half of 2011, with phone lines for whistleblowers, has seen some improvement on this issue – e.g. traffic police will now issue tickets, instead of demanding an on-the-spot fine – but it remains to be seen how far reaching the measures will prove, and how long the crackdown will last.

Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in Azerbaijan and some basic effective procedures you can establish to protect your company from them.

Read the information provided on our Bribery and corruption page.

Terrorism Threat

Azerbaijan is a stable country, with the major exception of the country’s war with Armenia over Nagorno-Karabakh. Although a cease-fire was signed in 1994, no peace agreement has been reached following 18 years of negotiations.

Azerbaijan’s state administration is well-developed and is established in all of the country’s territories (with the exception of the occupied territories). In the regions, the executive offices clearly and orderly implement instructions from the centre. Law and order is maintained by a considerable police force. Attempts at a violent overthrow of the government are therefore minimised.

All attempts by radical religious groups, paramilitary groups or terrorist organisations to use force against the state have been successfully contained.

Read the information provided on our Terrorism threat page.

Businessman reading newspaper

Protective Security Advice

Crime is low compared to London. Expatriates will tell you how safe it is in Baku, but muggings and petty thefts do occur from time to time after dark in the centre of the city, and around western bars and clubs. Some streets have no street lighting, and most incidents have been caused by a poor approach to personal security. Driving - or rather bad driving - is the biggest cause of fatalities. At night the standard of driving becomes even worse than normal; traffic signals are ignored and very often vehicles do not have their headlights showing, making it even more important that drivers remain alert to these potential dangers. ATM fraud is on the up and excessive bills being rendered for a couple of beers in bars are also on the increase, so newcomers need to be aware.

Normal western dress is appropriate for both men and women. Women do not need to conform to any traditional requirements of Islam (e.g. covered arms, headscarf) and, at least in Baku, even short skirts and skimpy tops are not uncommon. Shorts are rarely worn by men or women; indeed men wearing shorts should ensure that their shorts fall to at least knee level or below, “short” shorts would definitely cause a stir because of how it is perceived locally (Mark Elliott’s guide to Azerbaijan likens it to a man walking through Leicester Square in his Y-fronts). Outside of Baku women should dress more conservatively.

Read the information provided on our Protective security advice page.

Intellectual Property

Read the information provided on our Intellectual Property page.

Organised Crime

Read the information provided on our Organised crime page.