As the Azerbaijan economy has picked up its pace in the last five or six years, thanks mostly to windfall profits from Caspian energy resources, the economic numbers symbolizing bilateral ties have pretty much leveled out. There isn’t that much difference between export and import numbers, representing an overall balance in trade volume between Turkey and Azerbaijan. Economic and business deals are mutually beneficial and are presenting win-win situations for both countries. Turkish-Azerbaijani trade volume was around $2.5 billion in 2010. It was expected to reach $3 billion by the end of this year, with the target being $10 billion in the medium term. Turkey’s exports to Azerbaijan totaled $731 million, while Azerbaijan’s exports to Turkey were around $667 million in the first five months of 2011.
About 1,300 Turkish companies operate in Azerbaijan, while some 1,000 Azeri companies operate in Turkey. Turkish companies have invested $6 billion in Azerbaijan while Azeri companies have invested $4 billion in Turkey. Azerbaijani President İlham Aliyev announced during Turkish Prime Minister Recep Tayyip Erdoğan’s visit that Azeri companies were expected to invest an additional $6 billion in petrochemical industries in Turkey.
The State Oil Company of Azerbaijan Republic (SOCAR) is interested in making a $5 billion investment in its Turkish subsidiary, Petkim. Petkim, a petro-chemical company, is planning to construct a refinery in Aliağa in İzmir province as well as boosting the capacity of its current production. The refinery will be capable of processing 10 million tons of raw materials, making it one of the most important processing centers in Europe. Construction of the plant is expected start this fall and be completed by 2015.
Petkim announced the expansion of Aliağa terminal to have a larger cargo handling capacity with the ultimate of aim of creating a “Petkim Peninsula” similar to that of Jurong Island in Singapore, one the most important production hubs in the Far East. The company is also interested in the sale of İgdaş, Turkey’s largest gas distribution network, based in İstanbul, through a tender offer. İgdaş services some 4.2 million customers and has an annual distribution of 4 billion cubic meters of natural gas.
Securing energy supplies
Nobody denies that feelings of affinity between the two countries are a significant factor in developing ties. Remarks a senior aide to the Azeri president made to a group of visiting journalists a week before Turkey’s recently re-elected prime minister visited Baku sums up the cordial relationship Turkey and Azerbaijan has been enjoying for some time.
“Russia is our partner, Armenia is our enemy, but Turkey is our brother country,” said Ali Hasanov, head of the Azerbaijani Presidential Administration’s Department of Social Political Issues. “We have much deeper and better ties with Turkey,” he emphasized. Hasanov’s sentiments are pretty much shared by everybody in the country of 9 million and this was reaffirmed once again at the highest level when Erdoğan met with Aliyev in Baku.
Yet the robust economies of both countries and their alignment in strategic visions for the region galvanized economic cooperation beyond sentimental remarks. Turkey and Azerbaijan are cooperating in securing energy supplies from Central Asia and Caspian reserves to Western markets. In that respect, two important pipelines have already been built. In 2010, the Baku-Tbilisi-Ceyhan (BTC) pipeline carried 37 million tons of crude oil from the Caspian Sea to Turkey’s Mediterranean port of Ceyhan. Once the planned sea port is established in the Caspian Sea by Azerbaijan, more oil will be pumped from Central Asian countries to Western markets via the BTC pipeline. The Baku-Tbilisi-Erzurum (BTE) natural gas pipeline is another critical supply line bringing the two countries together. BTE pumped 4.9 billion cubic meters of gas in 2010.
Turkey, Georgia and Azerbaijan are also cooperating in building a railway connecting all three countries in a major transportation hub. Azerbaijan has already extended a $200 million loan to Georgia as part of the first stage in the construction of this railway with an additional loan of $575 million to be allocated for the next stage. Turkey and Azerbaijan is about to finalize talks over the Nabucco project, which aims to carry Caspian natural gas supplies to European markets while bypassing the Russian route.
Whether or not Nabucco is realized, Azerbaijan is looking at Turkey as a strategic partner in reaching out to Western markets. For example, two other alternative pipeline projects, namely Interconnector Turkey-Greece-Italy (ITGI) and the Trans Adriatic Pipeline (TAP), will have to pass through Turkey or link to the country’s existing network as well. Following the examination of detailed proposals in October, Azerbaijan is expected to decide which project to prioritize before the end of 2011.
Baku is also looking to open up Middle Eastern markets via Turkey. SOCAR executives Khalik R. Mammadov, vice president, and Vagif Aliyev, general manager of the investments division, told Sunday’s Zaman in Baku last week: “We have already made preliminary inquiries with potential customer countries in the Middle East. Once Syria has stabilized, we will start selling natural gas to all customers in the Middle East.” Last April, Azerbaijan signed a protocol on economic cooperation between Azerbaijan and Jordan, which included a framework for discussions about the export of an unspecified amount of Azerbaijani crude oil and natural gas to Jordan.
Turkey will comes into play as a strategic partner as there is no existing pipeline for the delivery of Azeri gas to customers in the Middle East. Turkey’s state-owned Turkish Pipeline Corporation (BOTAŞ) plans to complete a route that will link Turkey to the Syrian city of Aleppo next year. That could allow SOCAR to sell gas to Jordan, Syria and even Israel. “Syria did express interest in building a pipeline to connect its grid to Turkey, while BOTAŞ has already completed some of the pipeline construction in border areas,” Aliyev said. He also predicted that Azerbaijan could sell gas to Greece via the established network between Turkey and Greece.
Cooperation in non-energy industries
Azerbaijan Minister of Economic Development Shahin Mustafayev told Sunday’s Zaman that his country may benefit from Turkey’s experience in developing the diversification of the country’s economy and increasing the share of the non-oil industry in the overall economy. “Our main purpose is the development of the non-oil sector and diversifying our economy,” he said, noting that growth in the non-oil sector was 7.2 percent in the first six months of 2011; whereas growth in agriculture was 6.2 percent over the same period. “Turkey may help us in diversifying our portfolio,” he added.
Mustafayev also spoke of a possible role for Turkish companies in investment plans in Azerbaijan for the construction of major infrastructure projects, setting up industrial centers and the development of information and communication technologies sector as well as the tourism and hospitality industry. A new terminal at Heydar Aliyev International Airport is being constructed, while another international airport will be built in Gabala.
Baku is looking for Turkish help in improving its tourism and hospitality industry as it is scheduled to host the popular Eurovision Song Contest next year. Azerbaijani Culture and Tourism Minister Abulfaz Garayev told Sunday’s Zaman last week that that his government would welcome help from Ankara because Turkey has proven to be a world leader in the quality of services offered by its tourism and hospitality industry.
“Turkey has made remarkable progress in the services offered by its travel industry. We are looking to learn from Turkey and hoping they will share their best experiences with us,” Garayev said, stressing that the ministry is taking steps to ramp up Azerbaijan’s hospitality and tourism infrastructure dramatically. In cooperation with industry representatives, the ministry has already been offering training courses especially for service personnel in Azerbaijan. Most of this training was offered by Turkish specialists and in some cases the courses were held in Turkey.
Although the number of travelers to Azerbaijan was 2 million last year, industry experts argue the country could potentially accommodate 22 to 25 million tourists annually. The Eurovision Song Contest is expected to draw close to 50,000 people to Baku. The country is still trying to repair the damage done to its tourism industry by the negative impact of the Nagorno-Karabakh war during the 1990s. The industry bounced back in the early 2000s and today the government touts the ambitious idea of turning Azerbaijan into an elite tourist destination in the Caucasus.
Azerbaijan hopes that revenue earnings from tourism could be a significant contributor to the national economy in the future. There has already been considerable progress in tourism investment in recent years. In the first half of this year the tourism industry grew 18.6 percent compared to the same period last year, generating $384 million in revenue according to government statistics. The total investment made in the industry during the first half of this year amounted to $95 million.
Firudin Gurbanov, the chief of staff at the Ministry of Culture and Tourism, told Sunday’s Zaman that the country is looking to develop new concepts to attract more tourists to Azerbaijan. “It is true that we are taking measures to increase the service quality in our existing tourism facilities by offering training courses and allocating resources to the industry. But we also must complement these with new concepts to lure travelers,” Gurbanov explained.
More investment is needed in the hotel industry in Azerbaijan. There are six five-star hotels in Azerbaijan, with enough capacity to accommodate delegations and convention attendees. But Garayev says the country needs more hotels in the three to four-star categories for budget travelers. In the last five years about 50 hotels and holiday villages have been built around the country.