USACC 2012 Investment Guide to Azerbaijan by USACC

2012

INVESTMENT GUIDE TO

AZERBAIJAN

BUSINESS OPPORTUNITIES FOR THE 21st CENTURY

Investment Guide Table of Contents

INTRODUCTION TO AZERBAIJAN.............................................................................. 2

PUBLICATION INFORMATION Publisher The United States – Azerbaijan Chamber of Commerce (USACC) Publication Director

Mahir Iskender

Production Managers Susan Sadigova Fettah Anadol Editor

John Boit

Designer

Jeff Groves

Welcome from Azerbaijan President Ilham Aliyev............................................................ 2

Letter from USACC Co-Chairmen.................................................................................... 3

Azerbaijan Fact Sheet..................................................................................................... 4

LEGAL........................................................................................................................... 14

Recent Developments in Establishing a Business in Azerbaijan..................................... 14

Export-Oriented Oil and Gas Activities........................................................................... 16

Overview of Azerbaijan’s Tax System.............................................................................. 17

Real Estate Industry Thriving in Azerbaijan’s Boom........................................................ 19

GOVERNMENT AND FOREIGN DIPLOMACY.......................................................22 USACC WOULD LIKE TO THANK ALL THE ADVERTISERS WHO MADE THIS PUBLICATION POSSIBLE. If you would like to advertise in the next issue of this publication, please contact us at chamber@usacc.org.

COPIES OF THIS PUBLICATION MAY BE ORDERED FROM:

Congressional Perspective: ‘Much to Gain From Strengthened US-Azerbaijan Ties’........ 22

Conflicts in the Caucasus: Implications for Azerbaijan’s Economic Development............ 24

BANKING......................................................................................................................27

Azerbaijan: A Great Story Continues.............................................................................. 27

ECONOMIC OUTLOOK.............................................................................................. 31

Azerbaijan’s Pro-Business Investment Environment....................................................... 31

United States – Azerbaijan Chamber of Commerce 1212 Potomac Street, NW Washington, DC 20007 Tel: 202-333-8702 Fax: 202-333-8703 E-mail: chamber@usacc.org Website: www.usacc.org

The World Bank-Azerbaijan Partnership Strategy........................................................... 33

Azerbaijan Continues to Beat Forecasts: An Economic Overview.................................... 34

A DIVERSIFIED ECONOMY..................................................................................... 46

ENERGY....................................................................................................................... 38

SOCAR—Diversifying for the Future.............................................................................. 38

10 Questions for the State Oil Fund of Azerbaijan.......................................................... 41

Agriculture in Azerbaijan Improving, Finding New Markets............................................ 46

ICT: A Rapidly Developing Landscape That Will Soon Reach Into Space........................ 49

The Sky is the Limit: Azerbaijan Redefines its Position on the Modern Silk Road............ 51

After USACC Trade Mission, American Franchise Operator Asks: ‘Why hadn’t I heard of this place before?’......................................................................................... 55

Tourism: Top 10 Things to See in Azerbaijan................................................................. 57

FAQ ON DOING BUSINESS IN AZERBAIJAN..................................................... 59 GETTING A VISA........................................................................................................ 60 OUR MEMBERS.......................................................................................................... 62

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

Welcome from President Ilham Aliyev Dear Members of the US-Azerbaijan Chamber of Commerce, Last year, we widely celebrated the 20th anniversary of the regaining of Azerbaijan’s independence. As the USACC presents its 2011-2012 Edition of the Investment Guide to Azerbaijan, it would be very timely to review the major strides made by Azerbaijan in the twenty years that have since passed. By signing the Contract of the Century in the early 1990’s, Azerbaijan laid down the foundations of progress and stability for the generations to come, and paved the way for the co-operation with the main international oil companies to ensure access to the Caspian oil and gas. The tremendous achievements attained so far have enabled Azerbaijan to play a significant role in the energy security of not only its own region, but also the whole of Europe. Revenues generated from the oil and gas contracts became a pivotal tool in implementing nationwide infrastructure projects and opened up new opportunities for Azerbaijan to make direct investment into neighboring economies. In the course of recent years, the development of the non-oil sector became a top priority of the country. Azerbaijan’s well-known agriculture industry continues to advance its reforms aimed at extending stronger public support to farmers, presenting the best business practices and providing them with better agricultural equipment and financial incentives. According to the latest forecasts, the ICT sector in Azerbaijan can surpass the energy sector in revenues and become the main industrial field within the next 15 years. Azerbaijan proves its commitment to this sector with the anticipated launch in 2012 of its first communications satellite. We are pleased to have a multinational partnership with US companies to design and launch this satellite. Azerbaijan’s GDP growth remains strong and the well-educated internationally focused and results driven workforce continues to expand. Azerbaijan is recognized as a country that welcomes foreign investments, innovation and new technologies. Our long-term proven commitment to partner foreign energy companies is seen in the protection of foreign investments in Azerbaijan. We would be glad to broaden our partnership and co-operation which makes our friendship stronger and our nations greater. I welcome you and your business to Azerbaijan.

Sincerely,

Ilham Aliyev President of the Republic of Azerbaijan

INTRODUCTION TO AZERBAIJAN

Letter from USACC Co-Chairmen Dear friends and colleagues, It is a remarkable moment in Azerbaijan’s development. In a matter of a few short years, Azerbaijan has emerged as a truly global partner with ambitious goals for itself and its people. As co-chairmen of the U.S.-Azerbaijan Chamber of Commerce, we believe firmly in the important role that Azerbaijan plays today in the world of commerce and geopolitics. Since its establishment in 1995, the USACC has served as a vital resource for companies seeking to do business with Azerbaijan, and in so doing increase the two countries’ trade ties. The USACC is the only organization with a presence in the US dedicated to such commercial relations between America and Azerbaijan. As such, it is no wonder that we are seeing membership continue to grow at record levels, even in these past few years of difficult economic times. As with Azerbaijan’s recent development, the USACC’s activities over the past few years have also been impressive, making membership even more relevant and important to those who wish to succeed in business. Membership in the USACC provides companies a trusted advisor to help navigate unfamiliar waters. It means having assistance in securing meetings. It helps your company make all the right steps to successful partnerships. It provides access to key networking events. In just the past year, the USACC has hosted numerous high-profile events, including an ICT Forum in Washington, DC and a landmark Business and Investment Conference in Baku. In addition, the USACC has organized numerous trade missions and business meetings for representatives from agriculture, technology, logistics and franchise companies. These represent companies and industries that are on the move in Azerbaijan. Azerbaijan is an emerging democracy with enormous potential. This has been well demonstrated in the energy sector, which has developed rapidly following the signing of the Contract of the Century in 1994 by the late President Heydar Aliyev. Other sectors, such as infrastructure, transportation, construction, information technology and agriculture are also ripe for American-Azerbaijani cooperation. The USACC is uniquely positioned to guide American investors through the legal, economic and cultural landscape in order to establish and maintain successful business operations in Azerbaijan. While new business opportunities and economic growth form the backbone of Azerbaijan’s transition to a stable free-market economy, cultural development also plays an equally important role in sustaining a country in transition. The USACC is active in a wide array of cultural, educational and humanitarian endeavors through its Azerbaijan Trade and Cultural Center. Located in the same building in Georgetown as the USACC, the Trade and Cultural Center offers Azerbaijani language classes, movie nights, festival celebrations and an exquisite collection of fine carpets and paintings from Azerbaijan. We thank you for your membership and support, and for your continuing efforts in furthering U.S.-Azerbaijan trade relations.

James A. Baker, IV Reza Vaziri

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

WELCOMING U.S. INVESTORS TO BUSINESS OPPORTUNITIES FOR THE 21ST CENTURY.

INTRODUCTION TO AZERBAIJAN

Introduction to Azerbaijan

Caspian Sea

Azerbaijan Fact Sheet LOCATION - THE CAUCASUS REGION Azerbaijan is located in the southeastern part of the Caucasus, descending to the Caspian Sea, between Iran and Russia. As the Caucasus Mountains are the conventional border between Europe and Asia, the northeast area of the country is in Europe and the southwest area is in Asia. Time Zone: GMT+4 hours Area: Total: 86,600 sq. km (33,436 sq. miles) Land: 82,629 sq. km (31,903 sq. miles) Water: 3,971 sq. km (1,533 sq. miles) Comparative: Slightly smaller than Maine The total area includes the exclave of the Nakhchivan Autonomous Republic as well as the Nagorno-Karabakh region. In addition to the continental part, Azerbaijanâ&#x20AC;&#x2122;s territory includes several islands located along the Caspian coastline.

(SOURCE: CIA World Factbook)

Border Countries: Armenia:

787 km (489 miles)

Georgia:

322 km (200 miles)

Iran:

611km (380 miles)

Russia:

284 km (176 miles)

Turkey:

9 km (5.6 miles)

Total Land Borders:

2,013 km (1,250 miles)

Coastline: Azerbaijan borders the Caspian Sea (713 km/443 miles). There are three large land protrusions: The Absheron peninsula The Sara peninsula The Kura sand bar

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

CLIMATE

KEY DEMOGRAPHICS POPULATION (2011 EST.)

8.3 MILLION 6.4%

65 years and over

70.3%

23.2%

Grapes are one of many crops grown in Azerbaijan.

15-64 years

0-14 years

SOURCE: CIA WORLD FACTBOOK

ETHNICITIES (1999 CENSUS)

2% 5%

Russian

Other

Dagestani

91%

Azerbaijani

RELIGION (1995 EST.)

The climate varies from subtropical and dry in central and eastern Azerbaijan to subtropical and humid in the southeast (Lenkoran Lowlands), moderate along the shores of the Caspian Sea, and cold at the higher mountain elevations. In Baku, the climate is cool in the winter, averaging 4 degrees C (39F) in January. Summers are hot, up to 40 degrees C (104F), and humid because of the sea. There are often strong winds, especially during winter (Baku’s name, in fact, means “City of Wind”). Snow rarely settles in the city. Spring and autumn are pleasant and there is a great deal of sunshine from April to October. Because most of Azerbaijan receives scant rainfall – on average between 6-10 inches annually – agricultural areas require irrigation. The heaviest precipitation occurs in the highest elevations of the Caucasus and in the Lenkoran Lowlands in the southeast, where the yearly average reaches almost 40 inches.

Other

GOVERNMENT

Christian

93% Muslim

Government Type: Republic Capital: Baku Administrative Divisions: 59 regions, 11 cities, and 1 autonomous republic (Nakhchivan)

EDUCATION (1999 EST.)

100% 98%

Male literacy rate

Female literacy rate

SOURCE: CIA WORLD FACTBOOK

EXECUTIVE BRANCH Chief of State: President Ilham Aliyev (since October 2003) Head of Government: Prime Minister Artur Rasizade Elections: President elected by popular vote to a five-year term. Presidential term limits were abolished in 2009 by national referendum. Prime minister and deputy prime ministers are appointed by the President and confirmed by Parliament.

INTRODUCTION TO AZERBAIJAN

KISH, ONE OF AZERBAIJAN’S OLDEST VILLAGES.

AZERBAIJAN IS DOTTED WITH NUMEROUS PICTURESQUE VILLAGES DATING BACK CENTURIES.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

LEGISLATIVE BRANCH Established under the 1995 Constitution, the unicameral Parliament or Milli Mejlis consists of 125 seats. Members of Parliament are elected by popular vote to five-year terms. JUDICIAL BRANCH Azerbaijan’s court system consists of three tiers that include the Courts of First Instance, Courts of Appeals and a Supreme Court. The appellate system is divided into three main circuits: the Court of Appeals, which handles civil and criminal appeals in Azerbaijan proper; the Supreme Court of the Autonomous Republic of Nakhchivan, which handles civil and criminal appeals in the Nakhchivan exclave; and the Economic Court, which handles appeals from local economic courts. In addition, the Supreme Court hears all final appeals on lower court decisions. The Constitutional Court has jurisdiction over matters related to the constitutionality of laws, government and National Assembly resolutions, presidential decrees and international treaties.

HISTORICAL OVERVIEW

Stone Age petroglyphs at Gobustan.

Azerbaijan declared independence from the Soviet Union in August 1991. Early independence was marked by Armenian military attacks against Azerbaijan’s NagornoKarabakh region, tremendous economic distress, and internal struggles for power. Heydar Aliyev, elected president in 1993, brought stability to the country, created conditions that allowed a cease-fire with Armenia to be signed, and opened Caspian energy reserves to world markets by inviting foreign companies to prospect for oil and gas in what is now called “The Contract of the Century.” Today, Azerbaijan provides more than one percent of the world’s daily demand for oil through the Baku-TbilisiCeyhan pipeline. In addition, the Baku-Tbilisi-Erzurum gas pipeline has made Azerbaijan a key transit country to move major volumes of gas to European markets in the quest for energy security. Azerbaijan’s energy boom has allowed for the funding of major infrastructure, transportation links and education projects, which are key investments in the country’s plan to stimulate the non-energy sector and achieve long-term sustained growth and economic stability. Azerbaijan’s strategic location has also made it a key Western ally in regional security and stability operations. Azerbaijan is of geostrategic importance to the U.S., providing a critical flow-through point for Caspian oil reserves moving westward to world markets, and as a transportation corridor moving supplies eastward to Afghanistan.

Azerbaijan is one of the oldest sites of modern human habitation in the world, as evidenced by ancient settlements and petroglyphs dating back 20,000 years.

2011 HIGHLIGHTS

In the 12th century, Azerbaijan served as the crossroads of commerce and culture when it became an important link along the Silk Road that moved silk, precious stones, metal and spices between Asia and Europe.

• Azerbaijan became a non-permanent member of the UN Security Council

• A new giant offshore gas field was discovered under the Caspian Sea containing gas and gas condensate reserves of billions, and possibly trillions, of cubic meters.

• The country’s currency reserves grew to over $40 billion

• The poverty level continued to fall, ending the year at below 8 percent

In 1846, Baku drilled the world’s first oil well, more than a decade before America’s first well was drilled in Pennsylvania. By the late 19th century, Azerbaijan was home to the world’s first oil boom. Azerbaijan enjoyed a brief period of independence from Russia, lasting from 1918 with the creation of the

Azerbaijan Democratic Republic, until Baku was invaded by the Red Army in 1920. For the next seven decades, Azerbaijan was a state within the Soviet Union.

INTRODUCTION TO AZERBAIJAN

Azerbaijan had a number of notable events and milestones in 2011:

• Azerbaijan’s GDP growth grew to 3.7 percent despite the global economic downturn

• Unemployment remained low at 5.5 percent

• Azerbaijan’s non-oil sector grew 9 percent

• Military expenditure exceeded $3 billion

• Exports in Azerbaijan rose by more than 50 percent

• Azerbaijan’s currency, the manat, remained stable against the US dollar

• BP announced it will construct a 400-kilometer pipeline to boost the capacity of the South Caucasus gas pipeline to 24 billion cubic meters

• Turkmenistan indicated it favors working with Azerbaijan on a Trans-Caspian pipeline

• Azerbaijan submitted a bid to host the 2020 Summer Olympics in Baku

OUTLOOK 2012 The outlook for Azerbaijan in 2012 continues to look promising:

• Azerbaijan plans to increase supplies of crude oil to European and Asian markets to diversify its energy exports

• Azerbaijan is expected to launch its first telecommunications satellite

• The economy will grow at about 4.3 percent

• Inflation will remain in single digits, although growth in consumer demand will exert inflationary pressures

• Oil prices are expected to hover around $81 per barrel

• The manat is expected to remain stable against the US dollar

• High oil exports will continue to be the main driver of Azerbaijan’s substantial trade surplus

• Azerbaijan will host the Eurovision song contest, a televised event that garners hundreds of millions of viewers from around the world

(SOURCE: Economist Intelligence Unit and USACC)

Prospects for Trade and Investments Azerbaijan continues to undergo rapid development, gaining a further role on the world stage. The government’s priorities include continuing its growth as an energy provider and transport country, strengthening infrastructure, creating new jobs, developing the non-oil economy, and creating an anchor of stability and prosperity in the region. These developments and policies create new opportunities for foreign investors and firms interested in this region.

ENERGY Rapid investment growth and the development of Azerbaijan’s oil sector are boosting export and import volumes. Numerous foreign companies have made investments in extracting Azerbaijan’s significant oil and gas reserves. Azerbaijan already has major oil and gas pipelines exporting energy to Western markets, including the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and the BakuTbilisi-Erzurum (BTE) gas pipeline. Others are under consideration, including the Nabucco pipeline to move Caspian gas reserves to European markets. Estimates place Azerbaijan’s proven oil reserves at seven billion barrels of oil, and possibly almost double that figure. Azerbaijan today exports over one million barrels a day. Natural gas reserves in Azerbaijan’s the massive Shah Deniz field are estimated at 3.5 trillion cubic meters alone, and the discovery of additional giant offshore gas fields position Azerbaijan as a major energy producer for the region and beyond. By 2020, up to 55 billion cubic meters is forecasted. The BTC pipeline, which cost $4 billion to build, is the first private company-government partnered pipeline that brings oil to western markets without crossing Russian territory. The pipeline’s capacity is eventually expected to be expanded to 1.2 million barrels per day. Gas transit and exports are increasing through BTE pipeline, also called the South Caucasus pipeline, now in operation. In addition, other gas pipeline projects are expected to only bolster Azerbaijan’s growing role as a key provider of energy security through access to Caspian reserves. Among those developments was the announcement in 2010 of plans to construct a 400kilometer pipeline that will boost the capacity of the South

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

HEADQUARTERS OF THE INTERNATIONAL BANK OF AZERBAIJAN.

AZERBAIJAN HAS BEEN RECOGNIZED AS THE NO. 1 BUSINESS REGULATION REFORMER IN THE WORLD BANK’S ANNUAL ‘DOING BUSINESS’ REPORT.

INTRODUCTION TO AZERBAIJAN

Caucasus gas pipeline to 24 billion cubic meters. In addition to primary jobs and opportunities created within the energy sector, the growth of the industry is having spillover effects on the services sector as well. In particular, this includes services provided to enterprises, trade and catering, mobile telecommunications, construction and property.

NON-ENERGY Azerbaijan is increasingly becoming known for its pro-business attitude, helped by its tangible commercial reforms that have liberalized its non-energy economy. One of the most successful of these has been, in 2008, the establishment of what is known widely as the “one-stop shop” for entrepreneurs who wish to register new businesses. This new policy reduced registration time from weeks or even months to just a matter of days. In addition, the government launched a highly popular system of making tax payments online. Azerbaijan has been recognized as the top business regulation reformer in the World Bank’s annual “Doing Business” report. One World Bank official called these reforms “dazzling.” The reforms were implemented after government staff literally traveled the world to study similar successful systems. Implementation of sound policies, programs that support development of entrepreneurship, and a strong middle class are a part of Azerbaijan’s important development strategy. Successes are already evident, with some 1 million new jobs created in the past several years, mostly in the non-oil sector. Wages have been in a steady upward trend year-to-year. Opportunities abound in Azerbaijan’s non-energy sector. The Government of Azerbaijan sees investment in this area as a critical component to achieving economic diversification.

AGRICULTURE

Agriculture is the second largest sector of the economy and the largest employer in Azerbaijan. Rural development is a top priority for the government and demand for agricultural input is growing rapidly. The country’s diverse climate and over 1 million hectares of fertile land grow a wide variety of fruits and vegetables. Farms that were once part of the Soviet collective have now been privatized. Agricultural processing is accelerating, with many food products processed for export. There is current demand for agricultural machinery, as well as food processing and packaging technology. Recognition of Azerbaijan as a reliable supplier of high-quality agricultural products has grown substantially.

CONSTRUCTION Construction remains a large sector of the economy and real estate has seen unprecedented growth, particularly in the capital, Baku. This ancient city, which just 10 years ago was filled with low-rise buildings, is now dotted with hundreds of high-rise towers. Most of the high-quality building materials are imported, although local manufacturing of building products is emerging. Flooring, drywall, doors, windows, electrical systems, bathroom fixtures, paints, and heating and cooling systems are in high demand. American and European goods enjoy a reputation for better quality. The construction sector offers numerous opportunities for goods and services of interior, design, and architecture firms, including joint ventures to manufacture construction materials. Major construction projects are taking place across the country with billions being spent to tranform the capital of Baku, as well as a project that will convert a former industrial area into a modern, environmentally sustainable development called “The White City”.

INFORMATION AND COMMUNICATION TECHNOLOGIES Azerbaijan engaged the telecom industry with the impressive announcement the country will launch its own communication satellite by 2012. It has contracted with several companies in the United States and abroad to design, build and launch the satellite, which will aid in road navigation in Azerbaijan. Wireless communication is the fastest growing subsector in the telecom industry, an area in which Azerbaijan has

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

been a regional and global leader. Azerbaijanis are rapidly embracing communications technologies, with computer and cell phone usage seeing major increases year to year. Significant foreign investments have been made in this area, with four mobile operators now providing GSM, CDMA, and other technologies. In another new development, communications officials are continuing to move ahead with the launch of fourth-generation (4G) mobile telephone services. By one estimate, there are 6.5 million cell phones for just over 8 million people in Azerbaijan. The Internet has seen a rapid explosion in usage. From just a handful of Internet cafés in Baku just 10 years ago, there are now millions of Internet users in Azerbaijan.

HEALTHCARE Azerbaijan’s medical sector is poised for significant growth, driven largely by government investment in healthcare and increasing incomes from oil revenue and development. Azerbaijan does not produce medical equipment domestically; consequently, there is a demand for high-quality U.S. or European equipment. The healthcare industry is dominated by state-run clinics and hospitals, although many dental clinics have been privatized. Primary healthcare and private health insurance remain underdeveloped, particularly in rural areas. There is a shortage of doctors, and while the country has a large number of hospital beds by European standards, well under 50 percent are occupied at any given time, indicating a high level of inefficiency.

MAJOR TRADING PARTNERS

New York Stock Exchange

Azerbaijan’s main trading partners include the United States, the United Kingdom, Russia, Turkey, Italy, Germany, France, Kazakhstan, Georgia and Indonesia.

INTRODUCTION TO AZERBAIJAN

Azerbaijan maintains its status as an observer at the World Trade Organization (WTO) since it expressed its intention to become a member in June 1997. WTO membership will help Azerbaijan integrate into the world economy and modernize its trade policy. The U.S. Trade and Development Agency has issued a technical assistance grant to the Ministry of Economic Development for WTO accession preparation, and several rounds of talks have already taken place to advance of this process.

REGIONAL CHALLENGES A territorial conflict surged in 1988 between Azerbaijan and Armenia, when ethnic majority Armenians of the Nagorno-Karabakh region of Azerbaijan sought to secede from Azerbaijan and merge with Armenia or become an independent state. Subsequent events led to aggression and war that left Azerbaijan with almost 20 percent of its territory under occupation. Around one million people from Azerbaijan’s population became refugees and internally displaced people scattered around the country. A ceasefire was achieved in 1994; a lasting peace has yet to be agreed upon. The United States is among key negotiators represented within what is called the Minsk Group, also represented by France and Russia. Turkey, meanwhile, has also taken steps to assist in pursuing a lasting peace. Pushing—or perhaps complicating—a peace deal was the 2009 rapprochement between Turkey and Armenia. Turkey had previously closed its border with Armenian in protest over the Armenian military’s occupation of Azerbaijan’s territory in the Nagorno-Karabakh region. Some speculate this could precipitate an Azerbaijan-Armenia peace deal. As a long-standing frozen conflict, and given Azerbaijan’s strategic geopolitical position, there is little doubt that long-term regional stability must hinge on a solution to the Nagorno-Karabakh issue.

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2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

Legal Information Recent Developments in Establishing a Business in Azerbaijan By Mahmud Yusifli and Aliagha Akhundov Baker & McKenzie – CIS, Limited

CORPORATE PRESENCE A foreign investor wishing to engage in commercial business activity in the Republic of Azerbaijan may establish a corporate presence by choosing either a limited presence, in the form of a representative office or a branch, or a full presence in one of several corporate forms. The most common legal form to establish a full presence in Azerbaijan is a limited liability company – a legal entity consisting of one or more legal entities and individuals whose liability is limited to the extent of their contributions to the company’s capital. Since both a representative office and branch are subdivisions of a legal entity, neither is considered to be a separate legal entity itself. While a representative office represents and protects the entity’s interests, a branch, in addition to representing its founding entity, may also engage in some or all of its functions.

RECENT DEVELOPMENT: SINGLE WINDOW To encourage investment by both local and foreign investors, Azerbaijan has made significant improvements to the process of establishing a business. Most significantly, in 2008 Azerbaijan introduced a “single-window” or “one-stop-shop” system for registering commercial legal entities with a much simplified registration procedure. Now, a person wishing to establish a business presence in Azerbaijan interacts with a single state authority: the Ministry of Taxes of the Republic of Azerbaijan. This single-window registration system helped Azerbaijan earn its status as the World Bank’s number one reformer.

STATE REGISTRATION: DURATION AND FEE To register a legal entity in Azerbaijan, an application, together with certain supporting documents specified by

LEGAL

law, must be submitted to the Ministry of Taxes. Upon receipt of all documents, the Ministry of Taxes is obligated to register the company within three business days; the state fee for registration of an ordinary legal entity is AZN 11 (approximately USD 15). The registration procedure and documentation required for state registration of both a representative office and a branch are basically the same; to register a branch or representative office of a foreign commercial legal entity the state fee is AZN 220 (approximately USD 275).

FOREIGN STAFF Azerbaijani law is relatively permissive regarding the employment of foreign staff. However, a foreigner coming to work in Azerbaijan in most cases is required to obtain an individual work permit before starting work. Azerbaijan could be described as a country with “open” labor migration laws, as these laws are relatively simple and easy-to-follow. At the same time, practical implementation of these laws is not always straightforward and consistent and the policy with regard to foreign workers appears to be in a state of flux.

ELIGIBILITY REQUIREMENTS Work permits are issued by the Labor Ministry of the Republic of Azerbaijan, subject to the affirmative opinion of the State Migration Service. By law, a work permit may only be issued if:

(i) the foreign worker is at least 18 years of age at the time of application (in contrast, Azerbaijani citizens under 18 may, in certain circumstances, be employed on a permanent basis);

(ii) n o Azerbaijani citizen with adequate professional training is available to fill the job vacancy; and

(iii) s tate employment agencies are unable or have failed to propose a suitable local candidate to fill the vacancy

The employer’s application should address each of these points.

AZERBAIJAN IS EXPECTED TO LAUNCH ITS FIRST TELECOMMUNICATIONS SATELLITE IN 2012.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

DURATION A work permit may be issued for up to one year (most are issued for one year) and may be extended up to four times. Therefore, the cumulative maximum duration of a single work permit is five consecutive years. Extension beyond this term (a repeat work permit) is possible if the foreign employee spends a year outside Azerbaijan after expiration of the cumulative term of the initial work permit or after his/her last employment in Azerbaijan. As the Labor Ministry determines whether to issue or extend a work permit (at its own discretion, within the parameters of the law) the term of the employment agreement with a foreign employee must correspond with the term of the work permit. If the employment agreement is terminated earlier than the originally anticipated termination date, the employing company must inform the Labor Ministry within 5 days. In any case, a work permit will be deemed expired upon termination of the employment agreement.

TRANSFER TO NEW JOB An employing company may not transfer a foreigner to work on another job within the same company unless a new work permit is obtained for the new job. Similarly, a foreigner may not use his/her work permit to work for a new company, unless a new work permit is obtained for the new company.

Export-Oriented Oil and Gas Activities PSA Benefits for Oil and Gas Service Contractors By James Hogan, Salans Azerbaijan became one of the first newly-independent states emerging from the break-up of the Soviet Union to actively court foreign investment to assist in the development of its hydrocarbon sector. This early recognition that foreign investment and the attraction of the latest technologies would enable the effective development of the challenging offshore oil and gas deposits has resulted in the successful implementation and operation of the world-class offshore Azeri-ChiragGuneshli oil and gas and the Shah-Deniz natural gas

LEGAL

projects in the Caspian Sea, as well as the Baku-TbilisiCeyhan and South Caucasus Pipelines. The know-how and innovative technologies of oil-and-gas service contractors supporting the participating oil companies in these projects played a key role in their success. A particular feature of the legal regime in Azerbaijan is that, in the absence of a specific law on petroleum or other legislation for hydrocarbon projects, the government and the participating oil companies negotiate and agree upon a comprehensive Production Sharing Agreement (PSA) to define the tax, social, employment, customs, dispute resolution and operational aspects of the project. Thereafter, the PSA itself is approved and granted the force of law by the parliament, the Milli Majlis. This approach has worked fairly well in practice and offers significant stability in projects. In addition to the contracting oil companies that acquire subsoil rights in this manner, foreign subcontractors conducting petroleum operations also benefit from a streamlined tax regime and social, customs and other provisions of the PSA. These benefits are similar to those accorded the contracting oil companies.

EXPORT ORIENTED OIL AND GAS ACTIVITIES Many oil-service companies may now benefit from the 2009 Law on the Special Economic Regime for Export Oil and Gas Activity. This recent law applies to local contractors and to their local or foreign subcontractors involved in oil and gas activities, including the exploration for and the sale and purchase of oil and natural gas, that are oriented towards exports (i.e., the supply of local goods, work and services in connection with oil and gas operations conducted outside of Azerbaijan). Although the benefits envisaged by this law are available only to local contractors (Azerbaijani physical persons and legal entities) and to their local and foreign subcontractors, they extend to local entities with foreign investment, including wholly-owned subsidiaries of foreign companies. Potentially qualified contractors are those â&#x20AC;&#x153;possessing within the Azerbaijan Republic the relevant territorial, infrastructure and technical means, workforce, the necessary technical technological, administrative and management skills and experience and financial resources, carrying out projects in connection with export oil and gas activity outside the borders of the Azerbaijan Republic, having a direct contract with a foreign client.â&#x20AC;?

The Oil Export Activity Law is clearly intended to increase local employment and spur new domestic industries by exploiting the technologies, expertise and skills that have been developed by oil service providers and equipment suppliers in Azerbaijan during past two decades of intensive development in the country’s oil and gas sector.

NOT FULLY IMPLEMENTED

TAX, CUSTOMS AND CURRENCY BENEFITS

It will also be interesting to see whether the law, as implemented, eventually will allow benefits to extend to additional activities not specifically mentioned therein, such as the secondment of Azerbaijani specialists for activity in the oil and gas sectors of other countries, including Kazakhstan and Turkmenistan, where there is considerable demand for offshore oil and gas expertise. However, as the new law ultimately evolves, the fact that Azerbaijan has created a special economic regime for qualifying contractors and subcontracts must be viewed as a positive development for service providers, suppliers, and others active in the oil and gas sector.

The principal tax benefit under the new law is the possibility for a local contractor or subcontractor to elect to pay profits tax under the existing Tax Code regime, or alternatively, to pay profits tax calculated at the rate of 5% of the aggregate price under the contract to which the benefits apply. Not surprisingly, the Oil Export Activity Law also sets forth a number of benefits directly connected with the export of goods and services. Many of these benefits are analogous to those extended under most PSAs, though many go further. They include the assessment of export VAT at a zero rate for qualifying contractors under the law. For contractors that have paid excess VAT, the law requires its reimbursement within 20 days, failing which interest is payable. The law expressly provides that such reimbursement shall not trigger a state tax audit. The Oil Export Activity Law prescribes the right of contractors to open bank accounts abroad subject only to a notification to the Central Bank of Azerbaijan. They also enjoy a guarantee of the right to convert local currency into foreign currency. In a manner similar to the typical PSA regime, the new law guarantees the free transfer, maintenance and use of foreign currency after the payment of applicable taxes and mandatory payments by contractors and subcontractors. Consistent with the normal legal regime, the payment of foreign employees’ salaries must be made in local currency in Azerbaijan and in foreign currency outside of Azerbaijan The tax and other benefits provided under the new law are not provided automatically. They must be applied for, and a number of conditions apply. The most significant condition imposed by the law on contractors wishing to benefit from the special economic regime concerns the mandatory use of Azerbaijani employees (though reasonable exceptions apply).

The Oil Export Activity Law has been in effect for a relatively short time and, in spite of the adoption of certain implementing regulations in November 2009, is not yet fully operational. Only time will tell whether contractors will determine that the new law is worthwhile for their activities.

Overview of Azerbaijan’s Tax System Analysis provided by PwC Azerbaijan As part of the economic reforms in the country, in 2001 the Government adopted a comprehensive tax code, recognizing the evolving economy and the demand for a better and clearer tax system. The Tax Code was drafted in consultation with foreign experts and international organizations. Overall, the new Tax Code marked a radical change from the post-Soviet tax system to a Western style system. The new Tax Code improved the tax structure in many significant ways. The Ministry of Finance, Ministry of Taxes and Milli Majlis (Parliament) have become much more open in terms of inviting different views from local and foreign business communities and associations and international experts over the past several years. A more transparent legislative amendment process in the last few years has allowed foreign investors and business associations to express their views on necessary changes to the Tax Code.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

There are visible signs that the tax administration is changing from a collections-oriented administration to a taxpayer-oriented one. The establishment of the central Taxpayer Service Department has proven to be a positive step in this direction. Furthermore, successful introduction of electronic filing, on-line integrated computer system, simplified registration process (so called “one-window”) have dramatically improved Azerbaijan’s rankings in the annual “Doing Business” report prepared by the World Bank.

WHAT’S AHEAD?

Profit tax is computed on the basis of an enterprise’s taxable profit. Taxable profit is generally determined on the basis of gross receipts less deductible expenses defined as any expenses related to generation of profits. The tax rate for the tax year 2011 on an enterprise’s profit is 20%.

VALUE ADDED TAX In general, VAT is charged at a rate of 18% of each taxable operation and the value of taxable import. There are detailed requirements for registration and accounting for VAT, with penalties for noncompliance. Companies with taxable transactions exceeding a threshold of AZN 150,000 (approximately USD 187,000) for 12 months must register as VAT payers. VAT is also applied to goods imported into Azerbaijan at Customs. In general, VAT paid on purchases (i.e., input VAT) is recoverable against output VAT which is charged on the sale of goods manufactured or the provision of works and services in Azerbaijan.

Baku City Hall

The latest round of tax code amendments (effective January 1, 2010) has not brought major changes into the tax system. Briefly, the changes include:

• Reduction of the profit tax rate from 22% to 20%

• Reduction of the maximum rate of personal income tax from 35% to 30%

• Establishment of a new rate of tax for private entrepreneurs at 20%

• Introduction of electronic VAT invoices

Various tax and customs incentives are envisaged for investors following recently adopted laws on special economic zones and on export-oriented petroleum activity. Ultimately, these laws are expected to help position Azerbaijan as a hub for the entire Caspian region and create an investor-friendly business environment. A brief overview on Azerbaijani taxes follows. As with doing business in any country, you should always consult a professional tax firm to ensure compliance with the law.

PROFIT TAX Payers of profit tax are all legal entities (including foreign legal entities) engaged in business activity in Azerbaijan.

LEGAL

MINING TAX Legal and physical persons involved in the recovery of minerals in Azerbaijan are obliged to pay the Mining Tax on natural resources extracted in Azerbaijan. The rates of tax are determined depending on type of the mineral and vary from 3% up to 26% on the wholesale price of the extracted minerals.

EXCISE TAX Excise goods produced in or imported into the Azerbaijan Republic are subject to excise tax, except for goods that are exempt from tax. Excisable goods include alcohol, tobacco, petroleum products, certain light vehicles, and yachts.

CUSTOMS DUTIES Customs duties rates to be levied on the value of the imported commodities vary from 0% up to 15% of the value of the goods imported depending on the type of the goods.

PROPERTY TAX Companies operating in Azerbaijan are required to pay property tax at the rate of 1% of the annual average residual value of fixed assets.

LAND TAX Tax on land is calculated as a fixed payment irrespective of

the results of the economic activity of owners and users of land. The rates are stipulated within the range of AZN 0.1 up to AZN 10 per 100 square meter of land, depending on purpose of use.

SIMPLIFIED TAX

Azerbaijan’s Real Estate Industry Boom Analysis provided by Prant

This tax is intended to ease tax burden for small size businesses and is in lieu of general profits tax. Simplified tax is levied at 4% for taxpayers operating in Baku, and 2% for taxpayers operating in other regions of Azerbaijan

Since achieving independence more than 20 years ago, Azerbaijan committed itself to developing its real estate sector, and now it has matured into a thriving part of the national economy.

In order to qualify for this tax, the total revenue of companies should not exceed AZN 150,000 (approximately USD 187,000) for 12 months (AZN 90,000 for physical persons).

Rich with natural resources like oil and gas, politically stable and with law protecting the rights of investors, Azerbaijan has attracted billions of dollars in direct foreign investment. This has helped real estate become one of the most successful areas of Azerbaijan’s economy.

INCOME TAX Income tax in the Azerbaijan is charged at the progressive rates of 14% and 35% of gross income.

SOCIAL INSURANCE FUND Both employers and employees make payments to this fund. The employer is required to pay an amount equal to 25% of an employee’s gross salary to the Social Insurance Fund. Employees are required to pay 3% of their gross salary to the Social Insurance Fund (this is withheld from their salary by the employer).

INTEREST AND PENALTIES There are certain interests and penalties applicable for failure to comply with the tax legislation (the penalties vary from 50% up to 100% of taxes underpaid or understated). Interest on outstanding tax liabilities is imposed at the rate of 0.1 percent per day. The statute of limitations for a tax law violation is three years.

OIL & GAS TAXATION In a nutshell, companies working under the umbrella of petroleum Production Sharing Agreements (“PSA”) and Host Government agreements (“HGA”) (for oil and gas pipelines) enjoy a special tax regime, which provides for lower tax rates of corporate income of foreign companies as well as exemption from VAT and customs duties, regardless of the legal form of a taxpayer. These tax exemptions must be approved by the tax and customs Azerbaijan authorities in advance.

When foreign companies and their employees set up shop in Baku and other regions of the country in the mid-1990s, rental and sales prices began to rise. But since oil and gas companies had yet to start returning on investment, the prices decreased toward the end of the decade and the early part of the 21st century. When those revenues began to flow into the country, prices stabilized and then rose. Additionally, the boost the oil and gas revenues brought to Azerbaijan prompted further growth and led to even more development, which helped strengthen the sector. The economy of Azerbaijan remains strong and vigorous, which has helped the real estate sector (and all sectors of the economy) stay away from the significant downturns that have plagued many other parts of the developed world.

The economy of Azerbaijan remains strong and vigorous, which has helped the real estate sector avoid the significant downturns that have plagued many other parts of the developed world.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

THE FLAME TOWERS, PART OF AZERBAIJAN’S MAJOR URBAN RECONSTRUCTION PROJECTS

THE INFLUX OF NEW COMPANIES HAS SPURRED THE CONSTRUCTION OF NEW MODERN BUSINESS CENTERS.

LEGAL

BUSINESS CENTERS The influx of new companies has spurred the construction of new modern business centers. The new structures differ from buildings of previous eras as they generally have their own parking lots, reception areas, security stations, cleaning services and conference facilities. While this is an exceptionally profitable area of the real estate sector, rents remain very reasonable, ranging from $25 to $75 per square meter in Baku. Older buildings will often have mixed usage, with business or retail entities on the lower two floors, and residential apartments used for the higher floors. These spaces generally see rents three-to-four times more expensive than the homes on the upper floors. The cost of such buildings are high, particular in desirable parts of Baku, because owners are able to charge higher rents. Because of this, it is difficult to find mixed use buildings for sale in downtown Baku, and investors are more and more frequently purchasing these places together, and sharing responsibilities for renting and management.

APARTMENTS There is still a tremendous stock of apartment buildings that were constructed before the Soviet period. Called “architectural buildings,” they are generally no more than four stories high and feature spacious and durable apartments. Always in high demand, these structures often command between $4,000 and $7,000 per square meter. Apartments built during the Soviet period are somewhat smaller than architectural buildings, but the buildings themselves are taller, anywhere between five and nine stories. Many are located in downtown Baku and other central districts. And their prices are lower, ranging from $1,500 to $2,000 per square metre. Buildings constructed after independence are far more modern with extra advantages, including new elevators, underground garages and new interiors. This style first began sprouting up in 1996, but has grown massively since 2000. These are generally priced between the architectural buildings and the Soviet-era buildings, although they fluctuate based on their proximity to Baku’s center. In downtown Baku, such a building can sell for between $3,000 and $5,000 a square meter.

While rents also are priced in a wide range, in Baku they are often priced as follows:

• 1 room: $800 to $1,300

• 2 rooms: $1,300-$2,500

• 3 rooms: $1,500- $3,500

• 4 rooms and up: $1,800-$5,000

VILLAS AND COTTAGES Vacation properties, such as villas and cottages, make up an important part of Azerbaijan’s real estate market. In Baku, most of these properties are located at least five kilometers from the city center, in areas like Ganjlik, Badamdar, Azizbeyov and in beach and other tourist areas. Many are large, with five or six rooms. Oftentimes, these have swimming pools, waterfalls, saunas, gardens and garages. While prices differ depending on where they are located, they can be expected to be more expensive than the city apartments. Rents can range from $1,500 a square meter for a two-room property to more than $5,000 a square meter for a six-room vacation getaway. Many of these are leased by foreigners and their families working for overseas entities in Azerbaijan.

SUBURBAN MARKET The rising number of foreign workers has led to growth in the suburban Baku market in recent years. Private homes in the suburbs have at times been valued at three-fold the cost of a central-city apartment. Many investors are buying full plots of land, building houses on them, and then selling the entire development. The build-out time for this can be as little as nine months, but as long as 16 months.

HOSPITALITY MARKET The hospitality market, including hotels, restaurants and function halls, are proving to be a popular investment. Hotels and restaurants return handsome profits, as a new middle class in Azerbaijan emerges and a steady stream of foreign visitors enters the country. While it is more expensive to buy the land and construct the facility, rather than leasing it, foreign investors seem to prefer purchasing, and then custom designing their facilities.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

Government and Foreign Diplomacy Congressional Perspective: ‘Much to Gain From Strengthened US-Azerbaijan Ties’ By U.S. Representative Bill Shuster

There continues to be a strong strategic partnership between the United States and Azerbaijan. Our two nations share many common interests including energy security, counterterrorism, and regional political stability. Azerbaijan has one of the fastest growing economies in the world. With the opening of the Baku-Tbilisi-Ceyhan pipeline, one million barrels of Caspian oil are reaching world markets for the first time, bypassing Russian pipelines. A natural gas pipeline follows a similar route to reach world markets. The Republic of Azerbaijan, a NATO Parliamentary Assembly Associate Member, is a key strategic partner of the United States. Azerbaijan was the first Muslim country to send troops to Afghanistan and Iraq, and plays an important role as a partner in counterterrorism efforts.

As the co-chair of the House Azerbaijan Caucus, I am pleased to have the opportunity to share my comments with readers of the Investment Guide to Azerbaijan. The focus of the House Azerbaijan Caucus is to raise awareness of the importance of the U.S. – Azerbaijani relationship and to work together to enhance that relationship for the mutual benefit of our two nations. Together with my colleague and fellow co-chairman of the caucus, Rep. Solomon Ortiz, we have expanded our caucus’ membership to approximately 40 members of the House of Representatives, and we continue to encourage more Members of Congress to work with us closely on Azeri issues. The Congressional Azerbaijan Caucus has increased bilateral cooperation between the United States Congress and Azerbaijan’s parliament, the Milli Majlis. Additionally, the Caucus has helped promote democratic, economic and social policies supporting the development of strategic relations with the largest and most populous country of the South Caucasus. It also educates and engages members of Congress about the challenges and opportunities unique to Azerbaijan, the Caspian Basin and GUAM (Georgia, Ukraine, Azerbaijan, and Moldova) countries.

GOVERNMENT AND FOREIGN DIPLOMACY

The largest country in the South Caucasus with a population of 9 million and bordered by Russia to the north and Iran to the south, Azerbaijan is located in a strategically critical neighborhood. Azerbaijan has remained committed to a special relationship and friendship with the United States. Without question, our two nations have much to gain from a strong relationship built on a foundation of mutual cooperation, trust and economic investment.

Without question, our two nations have much to gain from a strong relationship built on a foundation of mutual cooperation, trust and economic investment. Azerbaijan will play an increasingly important role on the world stage. The House Azerbaijan Caucus stands ready to assist the people and the government of Azerbaijan in taking full advantage of the opportunities ahead.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

Conflicts in the Caucasus: Implications for Azerbaijan’s Economic Development

of locations. Russia’s support for secessionists has been vital to the cause of all secessionist conflicts in the new post-Soviet republics. More importantly, Moscow’s intervention on behalf of potential secessionist groups was not motivated by common ethnic sentiments. Russia only acted out of pragmatic policy calculations when it could gain something strategically vital.

By Dr. Brenda Shaffer, University of Haifa and Visiting Professor, Azerbaijan Diplomatic Academy

Armenians and Azerbaijanis have disputed the status of the multi-ethnic Karabakh region for close to a century. With the weakening of central power in Moscow and widening of political participation in the Soviet Union starting in 1988, the status of Nagorno-Karabakh became an issue of open conflict. The emerging political leadership in Armenia also used the Karabakh issue as a means to mobilize wide support for their movement and the independence of Armenia. Violent confrontations emerged in Nagorno-Karabakh on the eve of the Soviet breakup, and Moscow stoked the fire in order to preserve its power in the region. The military confrontation between Armenians and Azerbaijanis escalated into all-out war in 1992 after the Soviet collapse. A ceasefire was achieved in 1994, and a situation of no war, no peace, has reigned for close to two decades.

Two major conflicts have affected Azerbaijan since its establishment as an independent state in 1991. First, Azerbaijan has been embroiled in a conflict with neighboring Armenia, which contested the internationally recognized border between the two new states after the collapse of the Soviet Union. The dispute centered over control of the Karabakh region. This conflict escalated to all-out war between the two new states from 1992 to 1994 and has remained unresolved. Second, secessionist conflicts in neighboring Georgia have challenged Azerbaijan’s security and trade options. Those conflicts erupted in the early 1990s and reignited in August 2008. Azerbaijan’s geography as a landlocked state renders it particularly vulnerable to instability in neighboring countries, which serve as its transit states. Despite these immense challenges during the last two decades, Azerbaijan has experienced dramatic economic development, and the conflicts did not impede the establishment of major oil and natural gas production and export projects. At the same time, however, these energy projects and Azerbaijan’s important contribution to international energy security have not endowed Baku with the necessary leverage to resolve the Nagorno-Karabakh conflict. Lasting peace settlements in the Caucasus will have obvious wider implications for political and economic trends in the region.

BACKGROUND OF THE CONFLICTS Despite the immense incongruity between political and ethnic borders in and between the political entities that emerged following Soviet breakup, only five secessionist conflicts emerged throughout the whole former Soviet Union. Three of these conflicts are in the Caucasus: the Nagorno-Karabakh conflict, as well as the Abkhazia and South Ossetia secessionist conflicts in Georgia. While frequently referred to as ethnic conflicts, identity differences were not a strong explanation for the emergence of the conflicts, since the Soviet space was distinguished by hundreds of ethnic and historical differences. Yet conflicts emerged in only a small number

GOVERNMENT AND FOREIGN DIPLOMACY

Georgia has been an especially important target for Russian intervention since its location makes it a geographical lever for controlling the landlocked regions of Central Asia and the Caucasus. Consequently, control of Georgia affects the flow of trade patterns and infrastructure development in the entire region. With Moscow’s assistance, Abkhazia and South Ossetia seceded in the early 1990s, effectively breaking away from Georgia. While Russia refrained from formally annexing these territories or recognizing them as independent until September 2008, they have been integrated into the Russian political space over the years. Moscow encouraged the emergence of all-out war in Georgia in August 2008 as part of a policy intended to weaken and ultimately eliminate the government of Georgian President Mikheil Saakashvili. At the same time, Moscow hoped to destabilize Georgia through this war, and thus undermine its role as a transit state for the second stage of Caspian energy export projects under consideration, such as the Nabucco pipeline project and other southern corridor options.

IMPACT OF THE CONFLICTS ON AZERBAIJAN By the time a ceasefire agreement was brokered in the Nagorno-Karabakh conflict in 1994,close to 20 percent of Azerbaijan’s territory was—and remains today—under Armenian occupation. Azerbaijan was left with undefined borders and close to a million citizens who became

refugees or internally displaced persons when they lost their homes. This situation has persisted for almost two decades. The lack of resolution of the conflict creates a permanent policy challenge for Azerbaijan. Conflicts over borders have also prevented the development of meaningful regional cooperation among all three states of the South Caucasus. During 2011, the line of confrontation between the armies of Azerbaijan and Armenia has heated up. There has been a steep escalation in the frequency of attacks and sniper fire and casualties of both civilians and soldiers are occurring on a weekly basis. This situation mandates more than ever acceleration of the resolution of the conflict. Azerbaijan has placed a high priority on attaining permanent and safe borders and on conflict resolution with Armenia. In recent years, Azerbaijan has used its newly acquired energy export wealth to provide permanent housing to Azerbaijani refugees and displaced persons and to improve their social services. Baku has also engaged in increasing the effectiveness and scope of its armed forces. U.S. and European policymakers have criticized this military buildup, but this national force will enhance Azerbaijan’s security and stability in its problematic neighborhood. It can also serve as a lever to achieve a comprehensive peace agreement with Yerevan. The 2008 Russo-Georgia war has illustrated Moscow’s ability to destabilize Georgia and consequently to disrupt Azerbaijan’s major trade outlet. At the same time, the war has spurred Azerbaijan to expand its transit options and to plan for a future role as a major transport hub for the greater Caspian region. This emerging role, if successful, would provide important economic development for Azerbaijan and would attract foreign direct investment.

OUTLOOKS FOR CONFLICTS IN THE CAUCASUS The Obama administration has not shown much interest in the South Caucasus and resolution of the conflicts in the region. The administration has not articulated or conducted any comprehensive policy toward the Caucasus region, focusing only on prodding Turkey to open its border with Armenia and maintaining over-flight passage and transit in the region for the US military. Progress on the opening of the Turkey-Armenia border will have profound influence on the state of the Nagorno-Karabakh conflict. This border was closed during the height of Armenia’s military campaigns against Azerbaijan as a token of Ankara’s solidarity with

Baku. If linked to withdrawal of Armenian forces from some of the occupied territories of Azerbaijan, this development could provide leverage for attaining a peace resolution of the conflict between Armenia and Azerbaijan. At the same time, if the border is opened between Turkey and Yerevan without any significant progress in Nagorno-Karabakh negotiations between Yerevan and Baku, this could serve as a significant setback to the peace process by removing the only non-military lever that could induce Armenia to compromise. Decoupling these issues would leave only military means as a form of pressure on Armenia at Azerbaijan’s disposal, and thus unintentionally increase the chance of the emergence of war in the south Caucasus.

Improved cooperation between Washington and Moscow can raise the prospects for resolution of the Nagorno-Karabakh conflict and improve the security situation in the region. The state of Russia-US relations will continue to have critical influence over the developments in the conflicts in the Caucasus. If the Caucasus region continues to serve as an important arena of US-Russia competition, most likely Russia will continue to support the continuance of these conflicts as an important lever of influence in the region that leaves both Armenia and Azerbaijan more vulnerable to its demands. However, improved cooperation between Washington and Moscow can raise the prospects for resolution of the Nagorno-Karabakh conflict and improve the security situation in the region. In 2011, Russia’s President Medvedev has been very active in the public diplomacy sphere in promotion resolution of the Nagorno-Karabakh conflict. It seems while Russia is not interested in full resolution of the conflict, it would support a change of the status quo that would entail Armenian withdrawal from some of the occupied districts outside the Nagorno-Karabakh region on condition of deployment of Russian troops as peace keepers. The dynamics of the Caucasus and surrounding regions are immensely complex. While economic prosperity is beginning to be realized in the region, there remain many significant challenges that will require an attentive and engaged international community in securing the long-term stability and success sought by all.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

FORTRESS WALLS OF ICHERI SHEHER (THE OLD CITY)

AZERBAIJAN IS A TRADE HUB OF THE 21ST CENTURY, WHERE EAST MEETS WEST, AND OLD MEETS NEW.

GOVERNMENT AND FOREIGN DIPLOMACY

Banking AZERBAIJAN: A Great Story Continues By Faig Mammadov The International Bank of Azerbaijan

Fitch upgraded the country’ sovereign rating from Stable to Positive and reaffirmed its investment grade. This is a remarkable performance indicator of the national economy and economic policy in general at a time when most other regional competitors were receiving downgrades. In the future, the rating allows large Azerbaijani companies to issue securities to raise funds on international financial capital markets and eases Azerbaijan’s entry overall to global capital markets. Investment activity has continued to grow with domestic investments outperforming foreign ones. Capital investments grew by 20% in 2010, exceeding $12 billion. Commercial bankers and private equity investors in search of a safe home for their funds increasingly see Azerbaijan as one of the few attractive investment opportunities in the region.

Headquarters of the International Bank of Azerbaijan

Many of those who get to know Azerbaijan for the first time agree that it is “a hidden jewel.” In addition to its rich culture, vast natural resources, variety of climate zones and hospitality of its people, Azerbaijanis becoming a regional player in social, economic and political affairs. Despite a global economic slowdown, the country’s GDP growth rate remains one of the highest in the world. Despite major hydrocarbon activity,, non-oil sector growth has outperformed the oil sector. According to official statistics, 2010 GDP grew by 5% with the estimates showing future growth by 4.4% in 2012, 5.1% in 2013 and 7.7% in 2014. External reserves have risen to six times external debt obligations of the country. “Provided oil price and spending assumptions are correct, Azerbaijan is on course to become one of the strongest sovereign net external creditors among rated countries by end-2012,” Fitch said recently. While the challenges posed by the global economy had their effects all over the world, their impacts on Azerbaijan were minimal to a large extent. Azerbaijan has a great story to tell. The world’s major international rating agencies all revalidated Azerbaijan’s economic progress. In May 2011,

Commercial bankers and private equity investors in search of a safe home for their funds increasingly see Azerbaijan as one of the few attractive investment opportunities in the region. Implementing the policy of President Ilham Aliyev, the authorities have responded early and responsively to the threatening worldwide credit crisis and its continuing repercussions. Their proactive responses to the crisis have included lowering the refinancing rate, reducing the reserve requirements for member banks, providing timely assistance to those few banks which needed help in repaying foreign currency debts, creating a deposit guarantee program by which individual deposits are now insured by the government. The establishment of the Financial Monitoring Unit and then replicating its functions by establishing FMU’s in every banking organization in the country have further advanced the fight against corruption and illegal financial activity, illustrating Azerbaijan’s solid contribution to global efforts in this sphere. At times when credit has been squeezed, government support to entre-

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

preneurs has continued by providing necessary financing through banks, while scaling up investments in physical infrastructure and increasing public and social spending. Still, some challenges remain to ensure sustainable economic growth and prosperity. The continuing occupation of the Azerbaijani territories by neighboring Armenia not only withdraw 20% of the land from its productive use, but also resulted in the need for continued massive support to refugees and internally displaced people. Rehabilitation of the occupied territories will require substantial capital, which will eventually come from a variety of sources, including the private sector.

Poverty levels have declined dramatically from over 50% just ten years ago to less than 10% currently. Poverty levels have declined dramatically from over 50% just ten years ago to less than 10% currently. Inflation is another area of focus, as it directly relates to the well-being of population. Usually, rapid growth impacts price stability, but it also results in an increase of income levels in Azerbaijan, providing an easing effect. GDP per capita has risen to close to $6,000, bringing the country to a new level of middle income economies. Azerbaijan has rapidly improved its Ease of Doing Business ratio and continues to improve its investment climate. A one-stop-shop has been introduced for registering new businesses, followed with the plans to replicate the same concept in obtaining licenses and permits in specific sectors. The worldwide credit crisis has reduced the access of Azerbaijani banks to external funding, putting undue pressure on bank liquidity. Apart from the price of oil, the critical benchmark for the Azerbaijani economy remains the continued health of the banking sector, where analysts generally agree that its relatively small size makes it better placed than neighboring bank sectors. The reason for this optimism is that Azerbaijan came relatively late to the external debt markets. In this regard it is worth noting pioneering role of the International Bank of Azerbaijan in doing the first syndications in the country and opening the door to Export Credit Finance globally. IBA guarantees are accepted globally, making trade with Azerbaijan easier.

BANKING

The International Bank of Azerbaijan (IBA), the country’s largest commercial bank, has so far weathered the past financial crisis reasonably well. IBA remains current on all its external obligations, while it had concluded a number of large fund-raising transactions in the first half of 2011. Project and trade finance remains one of the key areas of the bank’s strength, which supports not only small and medium enterprise development in the country, but also large projects at times of national importance. The bank continues its innovative approach to providing banking services by offering new types of products to a wide range of customers. The bank’s treasury operations are substantial and forward-looking. Undoubtedly, IBA remains to be one of the jewels of the national economy. The bank has an established, strong foothold in the country, as well as a developed network overseas in major financial capitals, including New York, London, Frankfurt, Dubai, and Liechtenstein,along with subsidiary banks in Russia and Georgia. The IBA Group also includes the Azericard processing company, Joint Leasing Company, and the International Insurance Company, all leaders in their own segments of business. Forthcoming privatization of the bank will positively impact its general performance and, thus, of the banking sector in the country as a whole. According to Moody’s, planned privatization of Azerbaijan’s largest bank is credit positive. Privatization of the bank will also support its dominant status, as IBA will benefit from increased capital, which will increase funding for large companies, as well as for a wide range of clients through an extensive distribution network. The creditability in the eyes of foreign investors remains in place. A great story continues. We welcome those doing business with the International Bank of Azerbaijan.

NO MISSION:

E L B I S S PO

At Advance International Transport, we don’t recognise the word In Azerbaijan we have offices throughout the country, and ‘impossible’. additional branches across the CIS and Eastern Europe including Kazakhstan, Poland, Romania, Turkey, Tajikistan,Turkmenistan, Once our logistics mission is established, we manage the Ukraine and Uzbekistan, plus an extensive network of transport of our clients’ cargo with care and expertise. longstanding partners and agents covering over 200 countries worldwide. As a global freight forwarder, we offer services worldwide. Through our regional headquarters in Almaty, Istanbul and Sofia, Our Advantage Express Service, operating between Poti we offer special expertise for markets in the CIS, the Middle East and Almaty, is a mini-bridge and one of a range of first-class intermodal, railfreight forwarding service solutions connecting / Levant and Central and Eastern Europe, respectively. global economies to markets in Central Asia and Western China. We have years of experience in managing the multimodal Quite simply, our mission is to make the impossible, possible. logistics for all types of heavy and over-dimensional project cargoes and capital equipment, as well as general shipping and freight forwarding, including reefer, dry bulk and liquid bulk shipments.

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2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

MUSICAL FOUNTAIN – BAKU NATIONAL PARK

IN 2010, ACTUAL VOLUME OF GDP WAS $51.8 BILLION, AND ACTUAL GROWTH WAS 5%.

ECONOMIC OUTLOOK

Economic Outlook Azerbaijan’s ProBusiness Investment Environment By Shahin Mustafayev Minister of Economic Development of the Azerbaijan Republic Azerbaijan’s economic reforms, begun shortly after regaining independence in 1991, are bearing fruit. Azerbaijan is a leader not only among countries in the region; it is also known worldwide for its rapid increase in its Gross Domestic Product (GDP). With a thorough and targeted economic policy pursued by the President Ilham Aliyev and based on the solid economic foundation of previous years, Azerbaijan has gained significant achievements in major sectors of the economy. In 2010, the actual volume of GDP was $51.8 billion, and actual growth was 5%. The country’s strategic currency reserves surpass $29 billion, large-scale reforms and state programs are improving the social welfare of the population, and the country’s poverty level has decreased by 9.1%. Rich in natural resources, Azerbaijan is an active player in such major international projects as the Baku-TbilisiCeyhan main export pipeline and Baku-Tbilisi-Erzurum gas pipeline. These projects, which move the hydrocarbon reserves of the Caspian Sea to world markets, have transformed Azerbaijan into one of the world’s main energy security providers. Today, Azerbaijan exports oil, gas, and electricity to Europe and its neighboring countries. At a time of increasing demand for gas, particularly among developing countries, Azerbaijan’s Shah Deniz energy field has strengthened the country’s position in regional and world markets. Oil plays an important role in the economic development of Azerbaijan. However, the country views its development not in terms of the profits this natural resource will provide, but rather in directing those profits to encourage human development. More precisely, Azerbaijan sees oil as a tool

to provide sustainable development, improve the social welfare of its people, and develop other sectors of the economy. The main priority in the economic course of Azerbaijan is the development of the non-oil sector. To this end, the State Oil Fund (SOFAZ) directs the financial gains from oil production to improving the welfare of current and future generations. SOFAZ was established in 1999 to responsibly manage the revenues from the oil, produced jointly with foreign countries, to use them efficiently, to direct them into the development of priority sectors, and to carry out projects of socio-economic importance. It is not a coincidence that international organizations have praised the activities and the transparency of this fund. One of the main goals of Azerbaijan’s socio-economic development is quickening the country’s integration into the global economy and strengthening its connections with foreign countries, international organizations, and financial institutions. At present, Azerbaijan is successfully cooperating with the International Monetary Fund (IMF), World Bank (WB), European Bank for Reconstruction and Development (EBRD), Islamic Development Bank (IDB), Black Sea Trade and Development Bank (BSTD), and Asian Development Bank (ADB). There have been significant advancements in Azerbaijan’s banking sector as the regulation of banks has increased as well as the number of bank branches. Encouraging entrepreneurship in Azerbaijan is an important part of the country’s economic policies and reforms. For example, the National Fund for Entrepreneurship Support is expected to provide $254 million dollars in entrepreneurial investments in 2012. Several legislative acts and laws of Azerbaijan Republic protect investors’ rights, interests and properties, provide equal opportunities for local and foreign entrepreneurs, and seek to protect entrepreneurs’ profits. In addition, the Azerbaijani government has signed agreements with several other countries to prevent double taxing and protect investments. Meanwhile, legislative efforts are underway to improve the country’s business development atmosphere.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

One key development in particular has accelerated and simplified the process of starting a business. As the result of a new “single-window” application system, the number of individuals with businesses in the country has further increased. The single-window system now also applies to import-export operations. One key development in particular has accelerated and simplified the process of starting a business. As the result of a new “single-window” application system, the number of individuals with businesses in the country has further increased. The single-window system now also applies to import-export operations. The improvement of Azerbaijan’s infrastructure and services has been crucial to private sector development. In recent years, the quality of the country’s electricity generation, water, gas, and communication services has been upgraded through improved electric stations, roads, irrigation channels, communication conductors and other infrastructure projects. Azerbaijan has also endeavored to integrate its transportation system, develop competitive transportation corridors, and establish South-West and North-South transportation corridors. A variety of state regulatory measures have succeeded in stimulating entrepreneurship, improving state-entrepreneur relations, and strengthening the mechanisms for protecting entrepreneurs’ rights. These reforms and initiatives have resulted in promoting a favorable business atmosphere and attracting foreign investment into the country. Indeed, statistics confirm that Azerbaijan’s attractiveness to foreign investment. Thus far, based on diverse resources, billions have been invested in the development of economic and social sectors in Azerbaijan. One of Azerbaijan’s top economic priorities is increasing its exportation capabilities. For this purpose, the Azerbaijan Export and Investment Promotion Foundation (AZPROMO) has stepped up its efforts. The main responsibility of AZPROMO is to provide assistance and financial resources

ECONOMIC OUTLOOK

to expand opportunities for the export of goods and services in the non-oil sector. Through AZPROMO a variety of events, held both within the country and abroad, have allowed Azerbaijani commercial leaders to increase their business connections. These and other efforts are the reason that a number of American companies are successfully operating in Azerbaijan. The Azerbaijan Investment Company OJSC was established by presidential decree on March 30, 2006 to support the development of the non-oil sector of the economy via termed equity injection and to attract local and foreign investments into greenfield and brownfield projects within the sector. The AIC’s activity is based on relevant decrees and the economic strategy of President Aliyev , as well as various requirements of state programs. Equity investments into non-oil sector projects in Azerbaijan, especially in the regions, the attraction of local and foreign investments and advanced technologies into these projects, the promotion and production of exportoriented products, and the implementation of corporate governance principles in companies and enterprises are the major priorities set for the AIC for 2011 and 2012. The company will continue construction of a modern shipyard and also assess opportunities to participate in agriculture, especially seed farming and cattle breeding, logistics, alternative energy, tourism and ecological projects. Meanwhile, the groundwork is being laid for Azerbaijan to become a member of the World Trade Organization (WTO). National legislative efforts are underway to adjust to WTO requirements. A considerable number of achievements have been attained through negotiations. Bilateral protocols have been signed regarding goods and services with Turkey, the United Arab Emirates, Oman and Georgia. Negotiations have also been completed with Kyrgyzstan. Azerbaijan was ranked 13th among 139 countries for macroeconomic stability according to the “Global Competitiveness Report” issued by World Economic Forum for 2010-2011, and was first among CIS countries for this indicator. In late 2011, Standard and Poor’s Ratings Services raised Azerbaijan’s ratings to triple-B minus, with a stable outlook. Fitch Ratings has also given an investment level rating to Azerbaijan for the first time. These activities have clearly strengthened the position of the private sector in Azerbaijan’s economy. These are excellent indicators of the favorable environment for developing businesses, encouraging entrepreneurship, and liberalizing Azerbaijan’s economy. These accom-

plishments have formed a strong base for the future advancement of business in the country. In the coming years, activities intended to further foster entrepreneurship and improve the business environment will be expanded. We invite companies to take advantage of the myriad business and investment opportunities in Azerbaijan.

The World BankAzerbaijan Partnership Strategy: Addressing the challenges for more inclusive and sustained growth in a resourcerich economy By Joseph M. Owen World Bank Country Manager for Azerbaijan

World Bank Headquarters, Washington DC

Azerbaijan is poised at a critical juncture in its development path as one of the fastest growing middleincome countries in the world. With booming revenues from oil and gas, Azerbaijan has experienced unprecedented growth and rapid reduction in poverty within the last decade. GDP grew by 18.2 percent on average between 2003 and 2009 and poverty declined from around 49 percent in 2003 to less than 10 percent in 2010 according to official statistics. However, most analysts believe that oil and gas production is likely to peak in a few years and subsequent growth will depend on the ability to foster growth in the non-oil sector. Growth in the non-oil sector is also important to ensure that sufficient well-paying jobs are being created to absorb the growing numbers of young people who will be entering the work force in the next decade.

This will require that Azerbaijan’s macroeconomic policies, its business environment, and its human capital development policies are all aligned with the goal of non-oil export development. Foreign direct investment (FDI) will be necessary to bring in new technological solutions and managerial practices to the private sector. Fiscal policy will need to be more predictable and public spending will have to be less expansionary in order to support a stable macroeconomic environment and an exchange rate that is conducive for exports.

BUILDING ON A SOLID FOUNDATION Azerbaijan has laid the foundations for this to take place. The country’s per capita income has more than doubled in real terms since 2003, while poverty has been cut by more than a half. Productive infrastructures have been upgraded. Power supply has been restored throughout the country and the country’s main roads are in the process of being repaired and expanded. Social infrastructure has also been upgraded and modernized, with schools renovated or rebuilt, a modern targeted social assistance system in place, and many hospitals under construction.

Azerbaijan set bold and ambitious plans for the use of the first phase of its oil revenues, and by all accounts it is well on its way to achieving them. The economy has generally been managed well. The State Oil Fund was established early on to manage oil revenue windfalls, the financial sector has seen increased competition and has thus far proven to be more resilient than many of Azerbaijan’s neighbors, and improvements are gradually occurring in the business environment. In general, Azerbaijan set bold and ambitious plans for the use of the first phase of its oil revenues, and by all accounts it is well on its way to achieving them.

THE WORLD BANK’S COUNTRY PARTNERSHIP STRATEGY (2011-2014) Since 1992 when Azerbaijan joined the World Bank, the Bank has provided financing for over 43 projects for an amount totaling over $2.9 billion. The current

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

active portfolio consists of 18 projects with commitments amounting to $2.2 billion, of which investments in the transport sector (on highways and railways) account for about 62 percent, water and sanitation sector for about 22 percent, and agriculture and rural development for about 3 percent. The new Country Partnership Strategy, 2011-2014, focuses on two key objectives: (1) strengthening the non-oil economy primarily through an improved business environment, better infrastructure, and improving agricultural productivity, and (2) improving the effectiveness of social and municipal services through investments in health, education, social protection and water supply and sanitation. A strong and enriched program of knowledge services and analytical work will complement the Bankâ&#x20AC;&#x2122;s investment loans and help Azerbaijan examine options for diversifying its sources of economic growth and determine the kinds of institutional reforms needed to reduce informality and stimulate private sector growth and job creation. The Bank will also be looking at how the education system can be transformed to improve access, coverage and quality at all levels, thus becoming more responsive to the need for competitiveness in a globalized economy.

THE FUTURE CAN BE PROMISING To become a prosperous upper-middle income economy in 10 years, Azerbaijan must rely significantly more on non-oil exports and FDI to expand its markets and to create jobs. In fact, growing non-oil exports are a test of the ability of domestic enterprises to produce high quality products and sell these abroad in a competitive global market. Areas that show promise for growth and job creation include agriculture, agri-business, trade logistics, and information and communications technology (ICT). Creating a favorable business environment in these sectors, similar to the oil and gas sector, will be critical to attract new private sector investments in these areas. Greater competition in the non-oil sector need not be feared but on the contrary should be welcomed and embraced. This is essential to ensure that growth and prosperity in Azerbaijan is broadly shared and inclusive.

Azerbaijan Continues to Beat Forecasts: An Economic Overview Compiled from reports of the Economist Intelligence Unit

Museum of Azerbaijani Literature named after Nizami Ganjavi

Although Azerbaijan felt the effects of the global economic downturn by way of lower oil prices and weaker external demand, the impact was much less severe than in other countries in the region. Real GDP expanded by 3.7% in 2011 which, while much smaller than recent years, still beat economic forecasts. Given that the energy sector has been the main driver of growth in recent years, an anticipated slower growth of oil production will cause economic activity to slow when compared to recent boom years when Azerbaijan had the fastest growing economy in the world. Nevertheless, the non-oil sector performed better than expected in 2010, growing 4.2%. Azerbaijan continues on a path of liberal market reforms and encouraging entrepreneurship. It has also streamlined what was once considered a byzantine, post-Soviet tax regime into a model for the region. Government financial and budget forecasts in Azerbaijan, which are closely tied to the price of oil, tend to fall on the conservative side. This caution is credited with helping to insulate Azerbaijanâ&#x20AC;&#x2122;s economy from the significant challenges and financial turmoil faced around the world. Azerbaijan has enjoyed the benefits of its forward-looking plan that created the State Oil Fund of Azerbaijan (SOFAZ). This sovereign wealth fund allows for the financing of ongoing infrastructure projects throughout the country. As of mid-2011, the fund had amassed and invested more than $50 billion.

ECONOMIC OUTLOOK

Azerbaijan experienced the repercussions of the global downturn through weaker oil prices and heightened risk aversion towards emerging markets. Although global oil prices will be higher in 2012-15 than in 2011, slower real GDP growth in Azerbaijan owing to lower oil production growth will weigh on budget revenue.

of the hydrocarbons sector will have spillover effects in services sectors such as transport, communications, and wholesale and retail trade.

The business environment may face challenges stemming from the continued effects of the global economic downturn of recent years, hampering the Azerbaijani government’s goals of increasing investment in non-oil sectors such as agriculture and manufacturing. New sectors do appear, however, to be emerging, particularly a vigorous entry into information and communications technology: Azerbaijan is expected to launch its first communications satellite in 2012 and some government estimates predict that revenues from the country’s blossoming ICT sector could exceed energy revenues in just over a decade.

• Annual average inflation will stay in single digits in 2011-15, but consumer demand growth will exert inflationary pressures in the later part of the forecast period.

• The manat will remain largely stable in nominal terms against the US dollar in 2011. The manat will resume an appreciating trend against the US dollar from 2012 onwards as capital inflows rise.

• Agricultural output is expected to continue to rise in 2012 and beyond.

• The non-oil sector will be a source of growth; in particular, the Government appears to be placing significant emphasis on information and communications technology.

• The Government may face a more testing political environment amid slower economic growth.

• The Government will continue to draw on the State Oil Fund of the Republic of Azerbaijan (SOFAZ, the overseas windfall fund) to help finance social spending and infrastructure projects.

In recent years, the oil sector had been the main driver of the economy; however, in 2010 the oil sector expanded by 1.8%, whereas the non-oil sector grew by 7.9%. The Economist Intelligence Unit predicts that the non-oil sector will remain the main driver of growth in 2012-15. Oil prices are expected to rise another $10 to $20 or more per barrel over 2011 prices of around $80 per barrel. While oil production will expand much more slowly over the forecast period than in recent years, the continuing development

Looking ahead, economic and political observers anticipate the following:

ECONOMIC GROWTH INDICATORS 2010

2011

2012

2013

2014

2015

REAL GDP GROWTH

5.0

2.9

2.7

3.2

3.5

3.3

INDUSTRIAL PRODUCTION GROWTH

2.6

-1.0

0.5

1.0

1.2

1.4

GROSS FIXED INVESTMENT GROWTH

5.6

2.5

4.0

5.0

5.5

UNEMPLOYMENT RATE (AV)

1.0

1.1

CONSUMER PRICE INFLATION (AV)

5.7

7.9

6.0

5.3

5.0

4.8

CONSUMER PRICE INFLATION (YEAR-END)

7.8

5.9

5.8

4.7

4.6

4.4

SHORT-TERM INTERBANK RATE

21.0

19.4

19.0

18.6

EXPORTS OF GOODS FOB (US$ BN)

26.5

27.1

27.4

28.1

28.2

28.4

IMPORTS OF GOODS FOB (US$ BN)

6.7

7.1

7.5

8.0

8.6

9.4

CURRENT-ACCOUNT BALANCE (US$ BN)

14.7

14.6

14.4

14.1

13.3

12.2

CURRENT-ACCOUNT BALANCE (% OF GDP)

28.4

24.7

21.8

19.2

16.6

14.0

EXTERNAL DEBT (YEAR-END; US$ BN)

4.0

3.9

3.8

0.80

0.79

0.77

0.75

0.74

EXCHANGE RATE MANAT:US$ (AV)

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

INTERNATIONAL MUGHAM CENTER, BAKU

AZERBAIJAN HAS A VIBRANT CULTURAL SCENE, WHERE LITERATURE, MUSIC AND THE ARTS ARE REVERED.

ECONOMIC OUTLOOK

POLITICAL OUTLOOK

State Philharmonic Hall named after Muslim Magomayev

With the events of the Arab Spring in the Middle East and North Africa, many observers have speculated what spillover effect such turmoil could have on many republics of the former Soviet Union, including Azerbaijan. In Azerbaijan, the effects have thus far proved minimal. Several opposition parties and movements have staged anti-government protests in the capital, Baku; so far the number of protesters has remained small. Further protests are likely to be held in the near term. The small number of people participating in the demonstrations indicates that the opposition’s ability to pose a threat to the status quo is limited.

establishing diplomatic relations and developing bilateral ties. This had, at that time, increased tensions between Azerbaijan and Turkey. However, relations between Armenia and Turkey have since soured, with the Armenian president suspending ratification of the protocols in April 2010, claiming that the Turkish administration had dragged out the ratification process beyond a reasonable timeframe. Following the setback in attempts to improve ties between Turkey and Armenia, relations between Turkey and Azerbaijan have improved. The two countries signed a gas deal in June 2010, ending a long-running gas dispute. In August Azerbaijan and Turkey signed a “Strategic Partnership and Mutual Cooperation” treaty, which reconfirmed the friendly links between them. However, if Turkey were to seek to improve ties with Armenia without a breakthrough in the Nagorno Karabakh talks, this would have a negative impact on Azerbaijani-Turkish relations. Talks between Azerbaijan and Armenia aimed at resolving the Nagorno Karabakh conflict are ongoing, but there has been no progress in recent months and years. Further progress in restoring ties is expected to remain slow over the forecast period. (SOURCE: Economist Intelligence Unit, Azerbaijan Country Report 2011)

New sectors appear to be emerging, particularly a vigorous entry into information and communications technology. Unlike the MENA states, Azerbaijan remains an overwhelmingly secular society. However, the strength of the Islamic community, which is drawing inspiration from Turkish and Iranian religious groups, has grown in recent years, and is a cause for concern for the authorities. In late December 2010 and January 2011 there were protests, albeit significantly smaller than in MENA, against the administration’s earlier decision to ban the wearing of the hijab in schools. The next presidential poll is scheduled for October 2013, an election the Economist Intelligence Unit predicts that President Aliyev “is highly likely to win.” On the regional front, Azerbaijan’s long-standing ally, Turkey, has decided to pursue better relations with Armenia, signing two protocols in October 2009 aimed at

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

Energy SOCAR: Diversifying for the Future

90,000-100,000 barrels a day of crude oil to the Georgian Black Sea port of Supsa where it is loaded onto tankers for further delivery to international markets.

Analysis provided by the State Oil Company of the Azerbaijan Republic

A third export pipeline is the Baku–Novorossiysk pipeline, running to the north of Azerbaijan and then through the territory of the Russian Federation Two crude oil grades are being exported by SOCAR from Azerbaijan. Azeri Light crude oil constitutes 95 percent of exports and is delivered via the Baku–Tbilisi–Ceyhan and Baku–Supsa pipelines. A second grade of Urals crude oil is made after Azerbaijan’s oil is carried through the Baku– Novorossiysk pipeline and mixed during transport with other suppliers from Russia and Kazakhstan.

Oil worker at the state-of-the art Sangachal Terminal

Having created a diverse and powerful export and transit potential, Azerbaijan has positioned itself as one of the important players on the world energy map. In 2011 the country produced around 52 million tons of crude oil and 26 billion cubic meters of gas. The State Oil Company of the Azerbaijan Republic—or SOCAR—plays a key role in the implementation of strategic objectives of the country’s oil and gas sector. Massive transnational energy projects create in Azerbaijan have allowed SOCAR to considerably diversify its activities and bring them to new levels. The substantial increase of crude oil production to just over 1 million barrels a day is an example of this success. SOCAR has attached a high degree of importance to the matter of maintaining the operation of multiple export routes for delivery of its hydrocarbon reserves to international markets. The company currently exports crude oil through three pipelines, the largest of which is the Baku– Tbilisi–Ceyhan pipeline. This serves as the main export route in Azerbaijan, and is the only pipeline that delivers non-OPEC crude oil to the Mediterranean. This route alone carries about 1 million barrels a day of high-quality Caspian oil to world markets. A second route is the Baku–Supsa pipeline, which carries

ENERGY

Naturally, the increasing volumes of hydrocarbon production in the Caspian region necessitate the need for reliable transit corridors. In addition to being a main supplier of energy, Azerbaijan has therefore emerged as a key transportation hub for the Caspian region. Cooperation with transit countries such as Georgia, Turkey, and Russia in moving its own and Central Asian resources to international markets strengthens Azerbaijan’s key role for exporters from neighboring countries. Meanwhile, Azerbaijan’s end markets have expanded considerably. Several years ago, for example, the Mediterranean was the main export region for the country’s crude oil, with only 10–15 percent of crude oil exported to long haul destinations. Today, some 40 percent of the country’s crude oil reserves are marketed outside the Mediterranean region, with deliveries spreading to Central Europe, North and South America, and Asia.

SOCAR is also becoming more active in projects outside the country, thus expanding its own presence in the international arena in diverse markets.

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2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

Internationally-focused lawyers who know your local market

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SOCAR is also becoming more active in projects outside the country, thus expanding its own presence in the international arena in diverse markets. In 2008, SOCAR’s established a foreign trading arm in Geneva called SOCAR Trading SA. This entity carries out trading not only with crude oil and products of Azeri origin but also with crude oil and petroleum products of other suppliers in the international market. Recently, SOCAR Trading SA established new offices in Singapore, Dubai and Turkey and representations in Vietnam and Nigeria designed to focus on and promote the company’s trading across different regions. SOCAR owns and operates 74 consumer gas stations in Georgia – one of the main markets for the company’s exported petroleum products. More stations are planned for the future. SOCAR owns and operates 14 consumer gas stations in Ukraine. The SOCAR-owned Kulevi Black Sea terminal in Georgia, first launched in May 2008, is now in operation. From this terminal, SOCAR has shipped about 1.2 million tons of petroleum products in 2010. In 2008, the SOCAR-Turcas/Injaz Consortium purchased 51 percent of the stock of Petkim, Turkey’s Petrochemical Holding Company, valued at $2.04 billion. Petkim, whose products are primarily produced for the Turkish petrochemical market, had a total market share of 27 percent in 2006. It is anticipated that additional investments could increase Petkim’s market share in Turkey to as much as 40 percent.

10 Questions for the State Oil Fund of Azerbaijan While Azerbaijan is clearly pursuing a diversified economy, there is little question that its backbone rests with the oil and gas industry. Revenue from hydrocarbons is sent to the State Oil Fund of Azerbaijan (SOFAZ), part of a strategy put in place to help the country build infrastructure, attract new investment and expand its economy. The editors of the USACC Investment Guide asked the head of SOFAZ, Mr. Shahmar Movsumov, to discuss the purpose, management and goals of the Oil Fund.

WHAT IS THE PURPOSE OF THE OIL FUND? The State Oil Fund of Azerbaijan (SOFAZ) was set up in December 1999 by Presidential Decree as an extra-budgetary entity which accumulates and manages oil and gas revenues of the country. The fund’s primary objectives are to help maintain macroeconomic stability in the country through diversification and to generate wealth for present and future generations.

IS THE OIL FUND UNIQUE, OR IS IT BASED ON MODELS FROM OTHER NATIONS? SOFAZ is a sovereign wealth fund. The motives for establishing a sovereign wealth fund, and its legal basis and forms, vary from country to country. Funding and withdrawal rules differ, too. In establishing SOFAZ, we looked at experiences throughout the world and took what was relevant to us. From this perspective, SOFAZ is a unique institution considering the differences in its establishment, legal framework and operations.

HOW MUCH MONEY IS IN THE FUND NOW, AND HOW MUCH HAS BEEN SPENT TO DATE? As of April 2011, total revenues to the Fund since its establishment have amounted to over $50.7 billion. So far, over $24.7 billion has been spent under approved annual budgets of SOFAZ.

WHO CONTROLS HOW THE FUND IS SPENT? The rules for withdrawal are very rigorous. The Fund’s annual budget of revenues and expenditures is a part of the consolidated state budget. As such, it has to go through a detailed and transparent approval process on

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

OFFSHORE PLATFORM

THE OIL FUND IS HELPING TO FINANCE LARGE-SCALE INFRASTRUCTURE PROJECTS THAT WILL HELP FURTHER DRIVE NEW BUSINESS.

ENERGY

various levels culminating in the annual law approved by the Parliament. It has to first be approved by the Supervisory Board of the fund. The board is headed by the Prime Minister and comprised of the Vice-Speaker of the Parliament, government officials and a representative of academia, and it performs general oversight and supervision related to the Oil Fund’s activity.

WHAT PROJECTS HAS THE OIL FUND FINANCED IN THE PAST? The Fund plays an active role in promoting the country’s economic growth through financing strategically important projects. These include:

• Through successful implementation of major oil and gas projects Azerbaijan has managed to become a strategic player in the global energy market. The government has signed a number of oil and gas exploration and production agreements with major international companies. SOFAZ invested in the construction of the strategically important and 1,100-mile long Baku-Tbilisi-Ceyhan (BTC) Main Oil Export Pipeline, which moves more than one million barrels of crude oil a day from the Caspian Sea to world markets. • SOFAZ is financing construction of the Oguz-Gabala water pipeline and reconstruction of the Samur-Absheron irrigation system. This will first significantly improve water supply in the capital city, and second, will improve water supply to hundreds of thousands of acres of agricultural land, creating jobs and improving living standards.

• Azerbaijan’s strategic location at the cross-roads between East and West has transformed the country into the regional transportation hub. SOFAZ is financing the Baku-Tbilisi-Kars railway project linking Baku with Kars in eastern Turkey via Tbilisi in Georgia. This project is expected to be a major part of East-West transport corridor.

• In 2006 the government established the Azerbaijan Investment Company (AIC) in order to diversify the local economy by making long-term minority investments in projects within the non-oil sector. The State Oil Fund financed the chartered capital of AIC.

• As you know, Azerbaijan has the highest per capita ratio of refugees in the world. As a result of Armenian military aggression and the occupation of around 20 percent of Azerbaijani lands, up to one million Azerbaijanis have become refugees and

IDPs. SOFAZ financed the construction of 57 new settlements for refugees and internally displaced persons in different regions of Azerbaijan including 16,400 new houses, along with accompanying schools, hospitals and other necessary infrastructure.

• Considerable emphasis is being placed on turning “Black Gold into Human Gold.” In 2006, President Aliyev approved a program financed by SOFAZ that provides fully funded scholarships for bright and talented young Azerbaijanis to study in reputable educational establishments around the world.

THE WORLD HAS BEEN AFFECTED BY A GLOBAL ECONOMIC SLOWDOWN. HOW MUCH HAS THIS BEEN FELT BY THE OIL FUND? WHAT CAN BE DONE TO PROTECT THE FUND AGAINST GLOBAL ECONOMIC FLUCTUATIONS? The Fund, like many other financial instructions around the world, is not immune to global financial volatility. Recent years have been especially challenging for the financial industry. In 2008, the world’s major sovereign wealth funds have incurred the losses of around 20 percent on average. We have managed to come out of this turmoil relatively unharmed and completed 2008 with a profit. This has been achieved mostly due to a very prudent and conservative investment policy pursued by the Fund.

WHERE IS OIL FUND MONEY INVESTED? STOCKS? COMMODITIES? The oil fund money is invested mainly in investment grade fixed income securities. As of April 2011, less than 1 percent of the Fund’s assets are invested in equities. Apart from a very small exposure (0.025% of the investment portfolio) to the Private Equity investment, SOFAZ currently has no investments in commodities and other alternative asset classes. Since inflows into the investment portfolio of the Fund come mostly from oil revenues, the portfolio is already highly correlated with the most popular investment commodity— oil. Our investments include sovereign debt obligations, debt obligations of international agencies, corporations and financial institutions.

WHAT ARE THE PROJECTIONS FOR THE FUND IN THE NEXT 10 YEARS? Projections for the fund directly depend on revenue and expenditure patterns during the next 10 years. In the near and middle term, the main share of revenues will consist of oil revenues, although the share of investment

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

ENERGY

income will increase gradually. Expenditures of the Fund are expected to be more stable than revenues in the future. According to our latest estimates, if the price of oil averages at $60 a barrel over the next 10 years, inflows to the fund will exceed $100 billion.

WHAT ARE THE BIGGEST CHALLENGES THE FUND FACES EVERY DAY? WHAT ARE THE LONG-TERM CHALLENGES YOU SEE? The main challenge for the Fund is to appropriately balance its long-term strategic asset allocation. We realize that long-term investment objectives necessitate a significant shift in the composition of our investment portfolio from fixed income securities, such as bonds and notes, toward more risky assets, such as equities and alternative investments. The nature of equities and alternative investments as an asset class incorporates both higher long-term return expectations and higher short-term volatility relative to fixed income instruments. Increasing exposure to risky assets will inevitably increase short-term volatility of overall investment portfolio of the Fund but this will come together with higher long-term expected return in the future. This is the message that should be clearly communicated to our stakeholders. The communication with stakeholders is of paramount importance for us also because of the high level of transparency of SOFAZ. All fields of activity of the Fund, including investment, performance, and asset composition of the investment portfolio, are freely available for public scrutiny.

IS THE FUND DESIGNED TO EXIST FOREVER, OR WILL IT BE DISMANTLED AT A CERTAIN DATE? SOFAZ is a permanent endowment fund. One of its main objectives is to transform what are, by nature, depleting hydrocarbon reserves into financial assets that will benefit future generations by creating permanent stream of income. SOFAZ is now in only its early stage of asset accumulation. Eventually, the share of oil revenues within the total income of the Fund will decrease but the share of investment income will increase. By that time, asset allocation of the Fund will be constructed in a way that investment returns will be sufficient to meet annual withdrawals.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

A Diversified Economy Agriculture in Azerbaijan Improving, Finding New Markets By Michael Greene U.S. Agency for International Development

Vineyard on the Absheron Peninsula

The agriculture sector of Azerbaijan’s increasing economy provides numerous opportunities for potentially profitable investment. As the country works to improve and stabilize its economic standing, the demand for lucrative agriculture grows. Azerbaijan’s current economy is fueled largely by its oil and gas sector, which brings in an exponentially large portion of the country’s funding. Serious plans have been made to attract non-oil investment and to move toward an economy that is integrated into the international market. Although agriculture contributes currently around 6 percent to the GDP, it is the second largest sector of Azerbaijan’s economy, and provides a sustainable solution that would build Azerbaijan’s international status while providing attractive incentives for investors. To coincide with this initiative, the government of Azerbaijan is looking to the development of the country’s rural regions, where over half of the Azerbaijani population resides. Many farms that were originally part of the Soviet Union have now been privatized and some have been developed. There are currently 2,600 privately owned farms along with agricultural enterprises and other organizations developing agriculture across the country. In 2011, the sector contributed over $544 million worth

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of agriculture exports and around 50% of the country’s employment. Dominated by crop and livestock, the agriculture sector provides countless opportunities for investors. With the cooperation of investors, a robust and profitable agricultural industry will contribute to a stable economy and create well-developed rural regions in Azerbaijan. Azerbaijan has a unique climate that enables the country to produce a wide-ranging assortment of produce. Home to nine of the eleven total climatic zones on the planet, Azerbaijan provides an opportunity to cultivate a diverse list of products that would attract an array of markets. Products already competitive in the international market include: pomegranate, pomegranate juice, feijoa, kiwi, cherries, apples, apple juice, persimmons, hazelnuts, greenhouse tomatoes, greenhouse cucumbers and early potatoes.

Azerbaijan has a unique climate that enables the country to produce a wide-ranging assortment of produce. Home to nine of the eleven total climatic zones on the planet, Azerbaijan provides an opportunity to cultivate a diverse list of products that would attract an array of markets. These new market interests have created a resurgence in certain products. For example, when many consumers in the United States recently gained interest in pomegranate juice, American buyers such as American Eagle, NorthCrest Foods, and Steinhauser began to explore markets that previously held little interest for them and purchased concentrate from Azerbaijani producers. When venturing to Azerbaijan, two significant aspects of the sector struck the buyers. The first was that the quality of produce from the Azerbaijani regions was superior. The buyers discovered that Azerbaijan’s pomegranate

AS THE COUNTRY STEADILY IMPROVES ITS ECONOMIC STANDING, THE DEMAND FOR LUCRATIVE AGRICULTURE GROWS.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

juice possessed a natural sweetness greater than other juice providers. During their trip, the American buyers also discovered an assortment of other produce that they anticipated would be successful in their market. This helped spur recognition of Azerbaijan as a potential long-term supplier. The second observation made by the initial American buyers was the small scale of the country’s production facilities. Most processing machinery was only able to make a dozen containers at a time, and the same went for the packaging technology. Azerbaijan quickly realized it had to upgrade its facilities to international standards. There is still an overall demand for better equipment and technology upgrades. However, over the past few years there has been significant improvement in processing capacity and capability with large-scale processing facilities popping up in juice and dairy, for example, and more plans are in the works. In addition, for those companies that have conformed to global standards, exports to the U.S. and Canada have resumed as of 2010. With agricultural development a top priority of the Azerbaijani government, officials are looking to domestic sources to stimulate the agriculture sector, both through private investment and government spending. Money has already been allocated from the State Oil Fund and put toward the development of the country’s infrastructure. Some of this funding has already led to investments in the development of support services such as cold storage facilities and greenhouses. In addition, other donors including the World Bank, the Swiss Development Corporation, the European Union and the United States Agency for International Development (USAID) are further supporting improvements in the sector through infrastructure, marketing, extension and productivity enhancements. These commitments will lead to the improved competitiveness of Azerbaijani agricultural products and support services in the global market. In 2010 the State Statistics Committee reported that around $541 million was invested in agriculture, representing 4.4 percent of total fixed investment in Azerbaijan, an increase of 38 percent from the previous year. In order to boost investment, government bodies and the private sector continue working to attract international investors. For example, in March of 2011, the Azerbaijan Investors Summit was held in Baku to discuss opportunities in banking, agriculture, alternative energy and the telecom market. In the past, USAID and the US-Azerbaijan Chamber of Commerce (USACC) have also

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sponsored trade missions to Azerbaijan to visit facilities and meet with senior level managers and government officials. Trade missions have coincided with other events such as the International Food, Drinks and Packaging exhibition sponsored by the USACC. Through these events, the country continues to interest investors who are learning more about the sector’s areas of opportunities and needs. In October 2010, USAID launched the Azerbaijan Competitiveness and Trade (ACT) Project— a three-year, $22 million program. The project is focusing on increasing competitiveness by improving the business enabling environment, enhancing the trade environment, and creating opportunities in key sectors, including poultry, dairy, aquaculture, pomegranate, apple and hazelnut. By working with local farmers and processors and identifying needs and opportunities, the USAID ACT project is achieving positive results in the agricultural sector of Azerbaijan—such as growing the carp and trout farming sector and improving milk standards and productivity, expanding opportunities for export in pomegranate, apple and hazelnut, and improving extension education in all sectors. In addition, the project is supporting several financial institutions to increase outreach and diversify products to better serve the agricultural sector. Building on work done through previously supported USAID projects, and in an effort to institutionalize good agricultural practices and improve competitiveness, the ACT project engages in and trains several business development service (BDS) providers in the country in an effort to improve the services offered to their farmer and processor clients. This initiative has resulted in over $18 million in investments in the agricultural sector over the past year in territories covered by the BDS providers. This investment is in addition to large-scale processing investments already mentioned above. Agriculture in Azerbaijan presents huge potential for profitable investment. While any business venture anywhere should be approached carefully and with due diligence, investing in facility upgrades, technology transfer, and increased productivity in Azerbaijan is seen by many as a key path to increasing revenue and rewarding investments. This can also been seen by the investments already taking place. The USACC is helping to create opportunities for investors and helps make the process exceptionally simple and straightforward for those who look to become involved in this exciting sector in Azerbaijan.

Information and Communication Technologies: A Rapidly Developing Landscape That Will Soon Reach Into Space By Ali Abbasov Minister of Communications of the Azerbaijan Republic

that benefits the public, while ensuring effective and fair use of limited resources, such as frequency allocation, and implementing advanced practices in the area of licensing. As a result of reforms, new fixed line and mobile telephone network operators have entered the market in Azerbaijan. Product manufacturers and broadcasting companies have also been successfully attracted to the country through sound a competitive environment. As evidence of success, the share of the private sector in overall ICT revenues volume has risen from 70.7% in 2004 to 80.0% in 2010. At the same time, foreign investors’ interest and confidence to this sector has been much improved. Foreign capital in telecommunications has increased over the last five years, and now makes up 25% of the total $1.5 billion invested in this sector during the last four years. The volume of goods and general services manufactured and rendered in the ICT sector has reached $6 billion over the past six years. In 2011 alone, the volume of general services rendered in the ICT sector of Azerbaijan increased by 11.7% over 2010, exceeding $1.3 billion.

The rapid growth of Information and Communication Technologies (ICT) in Azerbaijan is one of the many great success stories of the country’s development. With Internet use soaring, the deep penetration of cell phone use, and the anticipated launch of Azerbaijan’s own communications satellite by 2012, the ICT sector is indeed an exciting area of development. Azerbaijan’s ICT factor has become both a prerequisite for the development of all other sectors of the global economy, while also serving as an indicator of the pace of development of each sector. Azerbaijan’s strategic course of ICT development is based on three components: the liberalization of the telecommunications market and the creation of effective regulatory mechanisms; the development of the country’s telecommunications infrastructure; and the development of e-government and e-services. Through ICT liberalization and regulation, Azerbaijan has meshed domestic legislation with international standards and requirements of, for example, the World Trade Organization. In the process, it has attracted new operators to the market and established a competitive environment

The number of mobile network users in 2010 increased substantially, and the penetration rate of mobile communication subscribers reached an impressive 100%. In order to meet growing demand and to modernize existing fixed line telecommunication networks, the fixed line telecommunication networks’ capacity has been increased by 50%, while the household penetration level has reached 67.3%.

The applications of ICT developments are felt across society, unveiling opportunities for the benefit of education, student admissions, health care, insurance and pension systems, taxation, customs, administration of justice, elections and public security systems.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

BAKU CITY HALL

AZERBAIJAN HAS SERVED AS A TRANSCONTINENTAL ECONOMIC AND CULTURAL LINK FOR CENTURIES.

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Internet usage has increased dramatically. From 2005 through 2010, Azerbaijan’s Internet market grew more than four-fold, and the rapid development of broadband connectivity resulted in an increase in the number of Internet users. As a result of this rapid development, currently 50% of the population of the country uses the Internet, 15% of which use broadband services.

With so many successes in just a few short years, Azerbaijan’s ICT landscape is clearly evolving at a rapid pace, making it one of the key areas to watch on the country’s continued path of development.

The development of Azerbaijan’s telecommunication infrastructure and the establishment of favorable regulatory frameworks over the last several years have created numerous opportunities within the IT sector. In 2010, IT production grew two-fold, while the IT service sector grew 20%. Software development increased approximately three-fold, and the manufacturing of computers and periphery devices doubled in 2010.

The Sky is the Limit: Azerbaijan Redefines its Position on the Modern Silk Road

All of these benchmarks are aimed at building an information society in Azerbaijan that provides access for every citizen. The applications of ICT developments are felt across society, unveiling opportunities for the benefit of education, student admissions, health care, insurance and pension systems, taxation, customs, administration of justice, elections and public security systems. In addition, Azerbaijan’s ICT objectives are not only crucial in addressing the country’s domestic needs, they also contribute to international and regional development. Understanding the role that ICT plays in international and regional development, Azerbaijan has set forth three major initiatives: One of these initiatives is aimed at establishing of Regional Innovative Zone that will promote the development of the IT market by providing a platform for a Regional Data Center, an Institute of Advanced Technologies and an International IT University. A second objective entails setting in place a “Trans-Eurasian Information Super Highway” by and among Eurasian countries. This highway will bridge two vast and highly developed ICT regions by linking countries of Western Europe with Southeast Asian countries of the Pacific basin. It is envisioned that this information highway will encompass some 20 countries altogether, including those lagging behind in their development. A third and extremely exciting objective is the launch the country’s first telecommunication satellite covering Continental Europe, the Middle East and Central Asia by 2012.

By Roncevert D. Almond The Wicks Group

Offshore oil rig on the Caspian Sea

Located at the nexus of Asia and Europe, Azerbaijan has served as a transcontinental economic and cultural link for centuries. Azerbaijan is the strategic Eurasian gateway linking West and East as well as North and South. In addition to bridging the major economies of Europe with China, transcontinental routes through Azerbaijan connect emerging markets in Eastern Europe with Southeast Asia and Russia with the Middle East. With two-thirds of the world’s population and over 50% of the world’s GNP, Eurasia represents an increasing share of the world’s economic power. Azerbaijan’s capital Baku is not only the economic and political center for Azerbaijan, the city is the commercial capital of the Caspian region. At the beginning of the 21st century, Azerbaijan is poised to re-define its position as the critical Eurasian transportation hub. The completion of the Baku–Tbilisi–Ceyhan (BTC) pipeline, dubbed as the “Deal of the Century,” has positioned Azerbaijan as the indispensable player for the transport of the Caspian Sea region’s oil to world markets.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

Crude oil extracted from the Azeri-Chirag-Gunashli (ACG) oil fields – estimated to hold over 5 billion barrels of recoverable oil – traverses the 1760-kilometer BTC pipeline from the Caspian Sea to Mediterranean Sea. The Azerbaijan rail system assists its land-locked neighbors in Central Asia with reaching global markets through access to the Black Sea. In 2009, the U.S. military began using alternative supply lines to Afghanistan – the Northern Distribution Network (NDN) – that transit through and over Azerbaijan. The NDN leverages existing commercial distribution networks to move non-lethal commercial cargo along traditional Silk Road routes. The NDN is designed to wean U.S. and NATO missions from their dependency on vulnerable land routes via the Bolan Pass and Khyber Pass. U.S. Transportation Command (TRANSCOM) estimates that 35 percent of the re-supply traffic bound for U.S. and NATO forces in Afghanistan now travels on the NDN, relieving pressure on primary logistic routes through Pakistan. Azerbaijan is also the center of major projects modernizing the Silk Road. Key sections of the 500-kilometer East-West corridor within Azerbaijan are being rehabilitated under projects supported by the Asian Development Bank (ADB) that will cover 127 kilometers at a cost of $170 million. This is part of the larger ADB-backed Central Asia Regional Economic Cooperation (CAREC) program under which regional members have agreed to spend $18.7 billion to modernize and expand six road and rail corridors that were once part of the Silk Road network between China and Europe. Baku is also the site of the Permanent Secretariat of the Transport Corridor Europe-CaucasusAsia (TRACECA), a program designed by the European Union to link Central Asia with Europe. American engagement in Central Asia and Afghanistan, the removal of Cold War borders, and the dynamic trade from Europe to China have established the framework for a transcontinental trading network spanning the Eurasian heartland. The strategic location of Azerbaijan at the crossroad of critical international transport corridors demonstrates the importance of the transportation sector for the country’s economy, regional security and international trade. Through transportation, the country is placed in a position to move forward in realizing opportunities presented by the modern Silk Road. The World Bank has identified challenges, however, to achieving this objective. For example, Azerbaijan’s logistics system has not corresponded with advances

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in other sectors of its economy despite the country’s comparative advantages in location and surging growth. Its logistics performance index (LPI) ranked 111th out of the 150 countries surveyed in the 2007 World Bank report “Connecting to Compete – Trade Logistics in the Global Economy.” The LPI is based on a worldwide survey of the global freight forwarders and express carriers who are the most active in international trade. The LPI measures a country’s trade logistics performance using a number of parameters. Under this system of measurement, countries with high LPI scores have lower trade costs and are better connected to the global value chain. Countries that top the LPI ranking, such as Singapore, are typically key players in the logistics industry, while those at the bottom, like Afghanistan, suffer from geographic isolation, poor governance, inconsistent regulation, and underinvestment.

Shah Deniz oil platform, Caspian Sea

Recognizing these challenges and the anticipated peak of oil production by 2012, Azerbaijan’s government is taking active measures to develop the transportation sector as an alternative and vital engine of growth. Recognizing these challenges and the anticipated peak of oil production by 2012, Azerbaijan’s government is taking active measures to develop the transportation sector as an alternative and vital engine of growth. Azerbaijan’s transport infrastructure includes 29,000 kilometers of highways, which serve as reliable transit routes across the Caucasus. The country’s rail network has over 2,100 kilometers of track, of which 828 kilometers are double-

tracked and 1,270 kilometers are electrified. It has direct maritime connections to other Caspian littoral states – Russia, Kazakhstan, Turkmenistan and Iran – and maritime access to the Black Sea and Baltic Sea through canals via Russia. The Baku Sea Port is the largest sea port on the Caspian Sea. While Azerbaijan has made progress in each of these areas – Azerbaijan moved up in the 2010 LPI ranking to 89 out of 155 – it is the country’s aviation sector which is poised to take off, particularly with regard to U.S.-Azerbaijan trade. Aviation’s global economic impact is estimated at USD 3,560 billion, equivalent to 7.5% of world GDP. In order to meet the promise of economic development, growth and stability offered through air transportation, countries must have the infrastructure, technical expertise, and regulatory foundations in place.

square meter terminal building at the Baku International Airport. The terminal’s 163,000-square meter apron area is capable of handling nine Boeing 747/AN124 aircrafts or 15 IL76-s. Its 3,500-meter CAT-3 certified runway can land aircrafts in close to zero visibility. The Baku Cargo Terminal can handle and store a wide range of cargo with facilities such as cooling facilities for perishable goods, a high-valuable cargo storage room equipped with surveillance systems, and storage for different categories of dangerous goods. All cargo movements are tracked using a computer program ANTWORK, engineered by the Baku Cargo Terminal and compliant with International Air Transport Association standards. Partnering airlines include Cargolux Airlines International, ATLAS Air, Evegreen International Airlines, Polar Air, Lufthansa Cargo, Volga-Dnepr Airlines, JetEx Flight Support, Antonov Airlines, Polet Cargo Airlines and others.

Azerbaijan has three modern international airports in Baku, Ganja, and Nakhchivan City. The Baku International Airport is the busiest in the Caucasus, with the capacity to handle 1,600 passengers per hour. Equipped with a 2,700-meter asphalt runway and a 3,200-meter concrete runway, it is capable of serving very large planes. Meanwhile, the Ganja International Airport and Nakhchivan International Airport were both renovated and upgraded in 2004 and 2006, respectively, thus adding to the international air cargo handling capacity of the country.

To effectively oversee this important and developing segment of the economy, Azerbaijan has undertaken a significant modification of its aviation regulatory structure by harmonizing it with a European model. The Wicks Group has been assisting Azerbaijan with this process.

Azerbaijan’s flag carrier, Azerbaijan Airlines (AZAL) operates scheduled passenger and cargo services between Baku and major domestic cities, as well as to 18 international locations. Its equipment includes Boeing, Airbus and Tupolev jets, as well as ATR planes and helicopters. AZAL is continuously upgrading its fleet and currently has new generation Boeing 787 aircraft on order.

In 2007, a new authority, the State Civil Aviation Administration (SCAA), was established in place of the State Concern of Civil Aviation by Presidential Decree no. 565 of 20 April 2007, entering into force on 21 April 2007. The SCAA serves as the “central executive authority” for the regulation and supervision of civil aviation in Azerbaijan.

Given the strategic location of Azerbaijan, air cargo service is a critical component of its air transportation industry. Silk Way Airlines is an all-cargo airline based in the Baku International Airport. It operates Antonov An-12 and Ilyushin II-76 planes, including noise stage four upgraded equipment. Silk Way will be adding Boeing 747 and 767 aircraft to its fleet. From its Baku base, it serves a number of international locations including in Europe, the Middle East, Central Asia and China. The Baku Cargo Terminal, adjacent to the Baku International Airport, one of the largest cargo terminals in the region, started operation on March 2005. It offers the entire range of cargo services in a state-of-the-art 12,000-

In 2005, Azerbaijan adopted a new primary aviation law. The Aviation Act of the Republic of Azerbaijan forms the new legal framework for the control and supervision of aviation activities in Azerbaijan.

Azerbaijan has promulgated new civil aviation regulations, which are adopted at the level of the SCAA, but are also approved at the level of the Cabinet of Ministers. The SCAA transitioned the civil aviation regulatory structure by incorporating the Joint Aviation Requirements (JAR) and adopting standards of the European Aviation Safety Agency (EASA), subject to appropriate modification. The SCAA is fully harmonizing Azerbaijan aviation regulations with their European counterparts and the standards and practices of the International Civil Aviation Organization (ICAO), a United Nations specialized agency. To support this effort, The Wicks Group has been providing technical assistance to the SCAA based in part on a grant from the U.S. Trade and Development Authority (USTDA).

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

FOUNTAIN SQUARE NEAR THE BAKU PHILHARMONIC HALL

AZERBAIJAN HAS A STRONG AND GROWING MIDDLE CLASS WITH A CONSUMER APPETITE SIMILAR TO THE UNITED STATES.

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The USTDA is charged with creating opportunities for U.S. exports of U.S. manufactured goods and services in developing and middle-income countries. As noted, AZAL and Silk Way have placed orders for long-haul Boeing aircraft with one of the main objectives being to enable direct flights to and from the United States. Currently, there is no direct commercial air service to the United States by carriers registered in Azerbaijan. In order to open the U.S.-Azerbaijan market, Azerbaijan must undergo a successful assessment by the U.S. Federal Aviation Administration (FAA). The FAA International Aviation Safety Assessment (IASA) program exists to ensure that all foreign air carriers that operate to or from the United States are properly licensed and have safety oversight provided by a competent civil aviation authority in accordance with ICAO standards. A foreign country must have achieved FAA IASA “Category 1” status confirming ICAO compliance before its air carriers will be approved for operations to and from the United States. FAA review is triggered upon notification of a pending foreign air carrier application with U.S. Department of Transportation (DOT). In the case of Azerbaijan, with assistance from The Wicks Group, Silk Way has applied for a foreign air carrier permit with DOT and, therefore, the process for unlocking the potential of the U.S.-Azerbaijan market has begun. Achieving Category 1 status and confirming ICAO compliance would be an important milestone in Azerbaijan’s progress towards becoming a key transit country and an important player in Eurasian trade and logistics. Of the eight countries involved in ADB’s CAREC program – Afghanistan, Azerbaijan, China, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan, and Uzbekistan – only China and Uzbekistan have Category 1 status as of October 2010. Azerbaijan is ready to realize its potential in the only rapid global transportation network, aviation. For Azerbaijan and the modern Silk Road, the sky is the limit.

After USACC Trade Mission, American Franchise Operator Asks: ‘Why hadn’t I heard of this place before?’ By Marc Mushkin Senior Vice-President, Pollo Tropical In the summer of 2011, I had the great pleasure of attending and also speaking at the USACC’s Business and Investment Conference in Baku. As the head of franchising for an American restaurant brand, Pollo Tropical® , it was a remarkable experience in many ways, not the least of which included opening my eyes to the incredible development of Azerbaijan’s markets. My work takes me around the world, and I have been in this field since the late 1990s. Yet even for me, as an experienced businessperson in international franchising, I was totally unaware of what had been happening in Azerbaijan over the past two decades. It was a very pleasant surprise. Every aspect of my trip, starting with the airport and the drive to Baku, was of such smooth professionalism that it left me wondering “Why hadn’t I heard of this place before?” Walking around town after the conference was fascinating (and quite safe), our dining experiences, both conference-based and on our own, were all at very high international standards, and the hotel (the Hyatt Regency) was first class in all the ways modern business travelers need. But apart from wanting a pleasant experience, as every traveler desires, I went to Azerbaijan to see if there would be merit in pursuing business opportunities there. It took very little time to reach a conclusion. I am pleased to report that everything my brand needs to succeed was evident to me after my four days in Baku. How did I know this? American franchisors look for a few basic elements when analyzing new markets: average incomes and the size of the country’s middle class; the ease of doing business; respect for trademarks and intellectual property; and the business support infrastructure (in my industry’s case, the food distribution system

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and the quality level of food handling and sanitation). All of these elements are strong in Azerbaijan. The statistics we were shown at the conference coupled with my other research indicate that there is a strong and growing middle class with a consumer appetite similar to the United States. The country’s government has a healthy respect for what the free market can bring to an economy and a people’s standard of living, and the legal protections already in place or rapidly developing allow for investors to confidently bring a brand into the country. Last but not least, is the presence already of familiar franchise names such as McDonald’s and KFC that make almost any American or European franchisor feel confident in awarding a franchise in Azerbaijan. There will of course be challenges. It is important for all international businesses looking to set up shop in Baku to know that it is a distant market with regions of political turbulence just across the borders. But on balance, this market is well worth pursuing, especially when done concurrently with a push in nearby Turkey.

brands, including home or business cleaning, pet services, delivery services, health and fitness services, to name a few, should be well received in Azerbaijan.

Azerbaijan’s government has a healthy respect for what the free market can bring to an economy and a people’s standard of living, and the legal protections already in place or rapidly developing allow for investors to confidently bring a brand into the country. I was accompanied on my trip by another representative of a major US brand in the wireless devices and consumer electronics retail field. He, too, found the market to be ideal for his brand. There appear to be no limits to the kinds of franchised businesses that can be introduced into Azerbaijan’s booming and dynamic market. It is my goal to bring my brand to Baku in the next year combined with new franchises in Turkey and the Middle East. My company is ready for the challenge, and we are confident that the market is ready for us.

In my field, I am quite certain that all manner of international brands in the quick-service and casual dining arenas can be successfully introduced into Azerbaijan’s market. The lifestyle stresses in this culture are the same as those faced around the world in developing and developed markets, with families time-starved and stay-at-home spouses less and less common. It should only be a matter of time before the popular quick-casual restaurant brands proliferate in Baku. And beyond that, there should be openings for other opportunities, including coffee, sandwich brands and sports bars. On the higher end of the scale, there will be room for luxury steakhouses and seafood grills like those found in some of the world’s most well-known cities. This consumer phenomenon also bodes well for other retail and convenience store concepts as well as for lifestyle retail brands. The entire spectrum of service industries that are represented in the ranks of franchised

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TOP 10 THINGS TO SEE IN

AZERBAIJAN Perspectives by Mark Elliott Mark Elliott is well known as the author of the best English-language guide book for tourists to the Land of Fire: Azerbaijan (With Excursions to Georgia), now in its third printing by Trailblazer publishing house. The book has been called “invaluable” by the Financial Times. The Baku Sun says “Mark Elliott could make even an Azeri feel like he doesn’t know Azerbaijan!”

RESTORED RESIDENTIAL BUILDING IN DOWNTOWN BAKU

The USACC asked Mark to share his advice with Investment Guide readers on the best things to see and do in Azerbaijan. He admits it’s hard to whittle down his favorites in a place that could take a lifetime to explore, but here are his Top 10 bits of advice, at least so far! 1

est view of the Maiden Tower: B From the rooftop cafe on top of the Sultan’s Inn

B est castle ruin: Çirax

M ost Atmospheric Hotel: The old Caravanserai in Sheki

B est off-beat surprise: The animist style superstitions on the Absheron Peninsula and atop Besh Barmaq

est mountain scenery: B Laza (Qusar district)

B est trekking base: Timeless Xinaliq high in the Caucasus mountains

Best desert scenery: Rural Nakhchivan

B est rural getaway: Homestays in the blacksmith village of Lahij

B est medieval monument: Momine Xatun, Nakhchivan City

10 M ost archetypal experience: Drinking tea from pear-shaped armudi glasses while playing nard (Azeri backgammon) Of course, these are just a few. To read more of Mark’s recommendations in Azerbaijan that he’s gathered from years of criss-crossing the country, his guidebook is available at www.trailblazer-guides.com/books. 2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

OUR MISSION IS TO BUILD A BRIDGE OF COMMERCE BETWEEN AMERICA AND AZERBAIJAN.

FAQ ON DOING BUSINESS IN AZERBAIJAN

FAQ on Doing Business in Azerbaijan 1. WHAT IS THE DIFFERENCE BETWEEN THE USACC AND OTHER PROFESSIONAL BUSINESS ASSOCIATIONS WORKING IN AZERBAIJAN AND THE US? The USACC is the only independent professional business association working to advance U.S.-Azerbaijan trade relations with a strong presence in Washington, D.C. This allows us to give our members the kind of assistance and contacts they need, in both Azerbaijan and the United States. Our mission is to build a bridge of commerce between the two countries, so having a respected presence in both capitals is essential to this effort and to our members.

2. WHAT ARE THE STEPS TO TAKE TO DO BUSINESS IN AZERBAIJAN? Azerbaijan has been recognized as a leader in implementing market reforms that favor and encourage the entrepreneurial spirit. If you are interested in starting a company in Azerbaijan, or opening a branch office of a US firm, start by calling the USACC. Our skilled staff can help guide you in the right direction.

3. WHAT SECTORS NEED INVESTMENT IN AZERBAIJAN? Azerbaijan has many sectors that are waiting to be developed. Obviously, oil and gas remain important fields, but opportunities abound in alternative energy, agriculture, health and medicine, ICT, and the hospitality industry, to name a few.

4. WHAT ARE THE EFFECTS OF THE RECENT FINANCIAL MARKET TURBULENCE ON AZERBAIJAN AND ON AZERBAIJANI COMPANIES AND BANKS? Azerbaijan has been recognized for its ability to weather the storm extremely well. This is in part due to the fact that fiscal policies were determined based on conservative oil prices. Officials also took the steps of significantly lowering the refinancing rate and greatly reducing reserve requirements. In addition, the government acted swiftly to assist those few banks who needed help in repaying foreign currency debts, and created a deposit guarantee program to insure individual deposits up to a certain amount.

5. DO I NEED A BUSINESS LICENSE TO OPERATE IN AZERBAIJAN? Yes. Applicants receive a response within 15 days. Licenses are generally good for five years, with a few exceptions, depending on industry.

6. IS THERE A VALUE ADDED TAX IN AZERBAIJAN? Yes. VAT is imposed on the turnover of most goods, work, and services in Azerbaijan, as well as on the importation of goods. The VAT rate is 18 percent of the price of goods, work, and services, or of the customs value of goods.

7. DOES AZERBAIJAN HAVE ANY BILATERAL INVESTMENT TREATIES? Yes. Azerbaijan has some three dozen such treaties, including with the United States.

8. HOW LONG CAN I STAY IN AZERBAIJAN UNDER A VISA? Single-entry visas for up to 30 days may be obtained at the airport upon arrival in Baku. You must provide two photographs as well as payment in cash, and be ready to declare where you will be staying during your visit. Foreigners visiting Azerbaijan for a period of more than 30 days must register their passports with the local passport registration authorities.

9. WHAT OTHER TAXES DO I NEED TO PAY IN AZERBAIJAN? All employers, except for those specifically exempt, must pay 22 percent of an employee’s gross salary into a Social Protection Fund.

10. WHAT KIND OF BENEFITS DO EMPLOYEES RECEIVE IN AZERBAIJAN? Minimum wage in Azerbaijan is set at 60 manats per month, or approximately USD $74. The regular work week is 40 hours, and Saturday and Sunday are the typical weekend days off. There are 18 official non-working holidays. Election days are also non-working, paid holidays. Employees are entitled to paid annual leave of at least 21 calendar days. Employers must pay compensation for an employee’s first 14 days of sick leave, after which compensation is provided by the State Social Protection Fund. 2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

Visa Information Visas to travel to the Republic of Azerbaijan can be obtained in advance at the Embassy of the Republic of Azerbaijan in Washington, D.C., located at 2741 34th Street, NW, Washington, D.C. For more information, visit www.azembassy.us. Effective October 15, 2010, the regulations for obtaining short stay single entry (up to 30 days) visas upon arrival at the Heydar Aliyev International Airport of Baku have changed. For more information, please visit the website of the Ministry of Foreign Affairs at www.mfa.gov.az.

VISA INFORMATION

Visas to travel to the United States can be obtained at the Consular Section of the U.S. Embassy in Azerbaijan, which is located inside the Embassy at 83 Azadlig Prospect. For more information, go to the website of the Embassy of the United States in Baku, http://azerbaijan.usembassy.gov/.

U.S. CAPITOL BUILDING, WASHINGTON DC

THE USACC IS A KEY RESOURCE IN PROMOTING AZERBAIJAN’S BUSINESS INTERESTS IN THE UNITED STATES.

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

Join Us USACC Membership Benefits

• Access to exclusive directory of important government and business contacts

• Post profile of your company and its website link at www.usacc.org

USACC offers a range of membership levels to meet the varying needs of its members. Whatever the size and focus of your company or organization, there’s a membership level to help you.

• Access to the “Members Only” section of the USACC website

• Enjoy a complimentary listing in USACC Business Directory

• Receive updates on business, economic, and political developments in Azerbaijan

• Discounts for Azerbaijani Language classes

• Receive invitation to events dedicated to issues important to members

• Assistance with Business and Travel Visas

• Receive invitation to USACC Annual Conference

• Enjoy complimentary or discounted subscriptions to USACC Investment Guide to Azerbaijan, USACC Business Directory and USACC Business Weekly Electronic Newsletter

These benefits are available to all member levels, unless specified otherwise. In addition to the benefits listed above, members receive benefits based on their membership level. Please see below for more details.

BENEFACTOR MEMBER

$10,000 ANNUALLY As a Benefactor Member, your company or organization receives all exclusive benefits of the USACC membership. This membership level has been designed for companies with long-term business interests in Azerbaijan and those interested in gaining visibility in the market. It is the most prestigious level of USACC Membership with a number of inclusive complementary services. Benefits include:

• Access to events featuring Azerbaijani dignitaries visiting the United States

• Arranging meetings with senior government officials and private sector representatives

• Assistance in business related problem solving

• Personal briefings on political and economic developments in Azerbaijan

• Access to “Benefactor Member Only” events

• Priority consideration for all limited attendance events

• Expedited visa services and assistance with logistical issues

• Eligibility for membership on the Board of Directors and Board of Trustees

• Complimentary Azerbaijani language courses

OUR MEMBERS

SUSTAINING MEMBER

$6,000 ANNUALLY This level of membership has been designed for those companies just entering the market in Azerbaijan or the United States and who are planning to expand their operations. Sustaining Membership is a great benefit to companies seeking to expand their business network and government connections. The USACC will assist these companies in gaining recognition and visibility in the market. In addition to the common membership benefits, Sustaining Member benefits include:

• Access to events featuring Azerbaijani dignitaries visiting U.S.

• Receive assistance with arranging meetings with senior officials and major businesses in Azerbaijan and U.S.

• Assistance in business related problem solving

• Eligibility for membership on the Board of Trustees

• Discounts on executive appointment services

REGULAR MEMBER

$3,000 ANNUALLY Regular Membership level has been designed for companies that have business interests in Azerbaijan or the United States and/or are interested in business opportunities and in promoting their products and services in these countries. This is an ideal membership level for the companies that wish to network with government and business representatives. Regular Members can attend most of the networking events organized by the Chamber and are briefed about business and political developments in Azerbaijan or the United States. This membership level includes all common membership benefits.

ASSOCIATE

$450 ANNUALLY

(INDIVIDUALS ONLY)

Associate Members are individuals who are interested in keeping up-to-date on issues concerning Azerbaijan and the Caspian Region. These members receive weekly newsletters and a complimentary copy of USACC publications and attend events and exhibitions sponsored by the Chamber.

Please visit www.usacc.org to fill out our membership application form. United States – Azerbaijan Chamber of Commerce (USACC) 1212 Potomac Street, NW Washington D.C. 20007 Tel: (202) 333-87-02 Fax: (202) 333-87-03 chamber@usacc.org

WWW.USACC.ORG

2012 U.S.-AZERBAIJAN INVESTMENT GUIDE

USACC MEMBERS DIRECTORY BENEFACTOR

AzQtel Bertling Logistics Bob Lawrence & Associates, Inc. Boeing Company

Anglo Asian Mining

Borusan Makina

AtaHolding

CASPEL

Azercell Telecom

Coca Cola

Azertrans

CRDF Global

Azpetrol

Euroasian Cargo

Baker & McKenzie

Hyatt Hotels Baku

Baker Botts, LLP

ITE Group

Bank of New York Mellon

Mozaik Investments

Orbital

Chevron

Overture Financial

ConocoPhillips

Parabank

ExxonMobil

Pasha Bank

Hess Corporation

PFC Energy

International Bank of Azerbaijan

Pfizer Azerbaijan

Solar Turbines

PowerPlus Technology

Statoil

Prant RAI

SUSTAINING Advance International Transport & Trading Cross Caspian Gas & Logistics Eni Halliburton Company

Raytheon Salans Sigma Technical Services SNC-Lavalin Constructors Inc

Jefferson Waterman International

Turkish-American Chamber of Commerce & Industry (TACCI)

Sikorsky Aircraft

Uzeyir Hajibeyov Caspian Mugam Opera

ZEVS-Z Group of Companies

Van der Wal International Transport The Wicks Group

REGULAR A+A Group of Companies

ASSOCIATE

American-Turkish Council

George DeBakey

ATAA

Leo Giacometto

Azzardare Management Group Azerbaijan International

OUR MEMBERS