Azerbaijan and Russia – Economic Cooperation and its Prospects

Eurasia News

Political analyst and expert of Eurasian regions Anastasia Lavrina

By Anastasia Lavrina

In recent years, the bilateral cooperation between the Russian Federation and the Republic of Azerbaijan has been intensively and dynamically developed in all directions. Both countries demonstrate solidarity in many issues related to regional policy development and a willingness to strengthen the integration through implementation of different projects. The “North-South” International Transport Corridor to deliver the products from the south of India to the northern and western Europe, is one of the most striking examples involving the development of railway connection and transport communication between Azerbaijan and Russia. A well-known fact is that transport infrastructure serves both the convergence of states and the growth of trade. Important to mention that last year, the trade between the two countries amounted to more than $3 billion, which is 18 percent more than in 2018. This is the highest rate in the last ten years

The increasing number of goods traveling along the “North-South” corridor requires the expansion of the routes. On December 24, 2019 an automobile bridge was opened across the Samur River on the border between Azerbaijan and Russia, which also contributes to the expansion of trade. Apart from it, the countries also discuss the possibility of connection the Trans-Siberian Railway and the Baku-Tbilisi-Kars Railway in the East-West format. After the completion of the Baku-Tbilisi-Kars railway, Russia started to use it to send goods to Turkey and through Turkish Mediterranean ports to other countries. On May 6, 2019 the heads of railway companies in Russia, Turkey and Azerbaijan signed a trilateral memorandum of cooperation in Ankara in the development of rail transportation. It boosted the operation of the Baku-Tbilisi-Kars railway by granting access to eastern ports of Russia. All this positively influenced the economic and social development not only Turkey, Georgia and Azerbaijan, but also Russia and the countries of Central Asia. Cargo turnover between Turkey and Russia today is over 20 million tons, but the available potential far exceeds this figure. This memorandum intended to strengthen the role of the Baku-Tbilisi-Kars railway even more.

The bridge is an important link in the international transport corridors “North – South” and “North –West” and also important to expanding contacts between the population from the border regions of Azerbaijan and Russia, increasing tourist flow between the two countries. Moreover, the construction at Baku-Guba-Russian Federation state border highway is also a part of a large infrastructural development program.

Azerbaijan is the only country in the world that has a land border with both Russia and Iran, and the only country, which participates in both, “North-South” and “East-West” projects. The successful implementation of regional transport projects has allowed the country to maximize the benefits of its location, becoming the leading transportation hub in the region. Such a geographical location is important for the development of trilateral regional cooperation. Azerbaijan – Turkey – Russia, Azerbaijan – Iran – Russia, as well as Azerbaijan – Turkey – Georgia, these are three best examples of the concepts of triangular cooperation, which is an important element for enhancing peace and security in the region.

Considering the importance of its geographical location, nevertheless Azerbaijan has never tried to use it as a geopolitical tool against any partnering country. This is mainly due to the principles of Azerbaijan to form sustainable cooperation with all regional countries pursuing a predictable, stable and transparent foreign policy. This policy made Azerbaijan a very attractive for neighboring countries, especially for Russia.

The centuries-old ties with Russia as well as the aspiration of two countries to foster the integration between the regions provides great potential and opportunities to make this partnership even more progressive. The formation of new realities in the system of geopolitics of the South Caucasus creates the basis for a process of mutual rapprochement of positions between Moscow and Baku in a number of areas of interstate interaction: economy, security, humanitarian sphere, Caspian dialogue.

Apart from intensive political dialogue, last years, Azerbaijan and Russia pay particular attention to development interregional cooperation in three main spheres: agricultural (growing bilateral trade and investment), infrastructural development and tourism. The countries are planning to launch joint cruise tours in the Caspian Sea.

In recent years, Azerbaijan has been carrying out serious reforms to improve its investment climate by strengthening the institutional, regulatory and operational conditions for companies in the country. The total investment from Russia to Azerbaijan reaches $ 4.9 billion. More than 950 companies with Russian capital are operating in Azerbaijan. The industrialists and investors are being provided with the most favorable conditions to ensure the safety of investment. The high interest of Russian entrepreneurs in industrial cooperation with partners in Azerbaijan can be indicated by frequent visits of the Russian companies’ representatives from various industries to Baku. As for now, both countries are working on creation of joint ventures and further export to the third countries. This is one of the priority areas of cooperation between Russia and Azerbaijan, which receives support at the government level.

Russian investors and entrepreneurs are mostly interested in agro-industrial complex of Azerbaijan, while Russian carmakers demonstrate great interest in establishment of additional plants here. In July 2019, the Russian company KamAZ signed a contract worth about $6 million with the Ganja Automobile Plant for the delivery of vehicle sets and further subsequent assembly in Azerbaijan. Also, last year, Azerbaijani company Azermash and the Russian automobile company GAZ Group laid the foundation for the construction of an Azerbaijani-Russian plant for the production of commercial vehicles and special vehicles in the Hajigabul district of Azerbaijan. Baku and Moscow are creating a joint venture for the overhaul and maintenance of helicopters. The corresponding agreement was signed by the president of Azerbaijan Airlines CJSC (AZAL) Jahangir Askerov and the general director of Russian Helicopters JSC Andrei Boginsky in December, 2019. Moreover, Azerbaijani-Russian joint pharmaceutical venture “R-Pharm” has been put into operation in the territory of the Pirallahi Industrial Park in the suburbs of Baku.

Effective coordination of joint efforts is being ensured by the Intergovernmental Commission for Economic Cooperation between the Russian Federation and the Republic of Azerbaijan. Since 2009, interregional forums have been regularly and annually held with participation of representatives of different business structures and state agencies from both sides. The protocols of the intergovernmental commission also contain clear guidelines for the creation of enterprises for the development of agricultural engineering, oil and gas engineering, shipbuilding, and metallurgy.

Recently, it became also clear that Russia and Azerbaijan do not except a possibility of more intensive energy cooperation which may contribute to further expansion of the Southern Gas Corridor. The project is about to start its operation in 2020 and the first gas will be delivered from the Caspian region to European market. In an interview to RIA Novosti at the World Economic Forum in Davos President of Azerbaijan Ilham Aliyev told that transporting Russian natural gas through the Trans-Anatolian Pipeline (TANAP) is technically possible. Russia also manifested its interest in joining this project.

As it became clear from the above, the economic cooperation between Azerbaijan and Russia contributes to the development of a whole region and ensures an effective implementation of many projects. Currently, there are prerequisites for reaching higher indicators in the field of trade, development of complexes of joint innovative production in the non-oil sector, development of infrastructure projects. Therefore, the goal is to realize the potential accumulated over the past decades. In general, this set of measures will allow the national economies of Russia and Azerbaijan to increase competitiveness and become stronger in the face of global competition.

Note: This article was originally published by CENTER OF ANALYSIS OF INTERNATIONAL RELATIONS