Many companies will observe the situation in 2017
Caspian Energy (CE): Could you please tell about the results of 2016, key tasks and objectives of the Chamber of Commerce for 2017 and the priorities at the Azerbaijani market?
Tobias Baumann, the Executive Director of AHK Azerbaijan: We can first refer to the EU-funded Business Climate Survey conducted by AHK Azerbaijan among the EU companies operating in Azerbaijan in the first half of 2016. We consider this a very remarkable achievement of the Chamber as this survey was carried out for the first time in 2016. The results of this survey provided us with a general picture as to how the EU and Azerbaijani companies active in the Azerbaijani market assess current market development and what expectations they have. The preparations for the second EU Business Climate Survey have already been started and the questionnaire is going to be circulated to the companies very soon. Moreover, we had a good restructuring of the Chamber in 2016-2017. We established a new Department for Market Analysis and Public Relations. We had a new Board and a new President elected in the last Board meeting of the Chamber.
In 2017, we are planning to continue surveys and produce relevant publications based on the findings. We aim to strengthen our current Membership format by establishing Working Committees. We will offer the member companies a direct platform, where they can discuss their thoughts and concerns on current market development. This in turn will enable us to provide the members with more relevant consultancy as well as to inform respective government bodies about the perspectives of the foreign businesses operating in Azerbaijan.
CE: What could you please tell about investments that were attracted to Azerbaijan in 2016?
Tobias Baumann: When it comes to investment projects, I cannot refer to the detailed investment plans of every single company of course. I can however comment on the overall picture and make an overall assessment. We have a number of well-established business relations between German-Azerbaijani companies and significant success stories. Due to widely discussed challenges in the economy of the country since last year, some projects are on hold; some are cancelled or postponed for a while. This situation suggests that many companies will just observe the situation in 2017. The good news is that the majority of the companies trust in the market and choose to remain in the country. Our organisation managed to keep and even slightly increase the number of members with respect to January last year.
CE: German Ambassador Mr. Michael Kindsgrab said that German companies were showing interest in economic road maps of Azerbaijan. Which areas and sectors are the most attractive for companies?
Tobias Baumann: The major goal of the roadmaps is diversification of the Azerbaijani economy. It clearly suggests strengthening of the non-oil sector of Azerbaijan as well as underlines stimulation of the SME sector and SME environment in the country as one of the priority areas. These are the positive factors affecting German businesses while considering the Azerbaijani market. Germany is currently present in the Machinery and Engineering field in Azerbaijan and provides the companies from a wide range of sectors of the economy with Machinery and Equipment. Promoting Agriculture, Heavy Industry, and Logistics and Transport sectors offers a broad platform for these two countries to cooperate.
CE: Which sectors are of interest to German companies?
Tobias Baumann: All sectors are interesting and attractive for German companies. Germany has well-established companies representing all relevant sectors of the economy, such as the Energy, Transport and Logistics, Infrastructure and Construction sectors etc. It firstly depends on the liquidity in the market, whether Azerbaijan is able to go for the German products, which are not always the cheapest in the market. Secondly, the sectors promising positive and dynamic development in the near future are the most attractive ones for foreign companies. Considering Azerbaijan’s vision about the New Silk Road shortening the routes between Europe and Asia, I believe one of the upcoming opportunities for the German companies in Azerbaijan is going to be Transport and Logistics sector.
CE: You have big industrial clubs of Germany among your members. Do they have any projects here or in the regions?
Tobias Baumann: The Chambers of Commerce are part of the German Chambers Network (AHK Worldwide). We have around 79 regional Chambers in Germany. Those Chambers have certain interests in Azerbaijan, as they have companies in their membership, which are active in Azerbaijan. They are interested in obtaining more information about Azerbaijan in order to be able to give the first-hand information to their member companies. Moreover, they closely cooperate with us when it comes to the organisation of delegation visits. The Chambers of Commerce of course do not have their own investment projects in Azerbaijan; they transmit the market information and supply the necessary documentations to facilitate foreign trade activities.
CE: In other words, we are talking about information supply…
Tobias Baumann: Regarding the Chambers, Yes. The Chambers are Business Associations. They are not economically active as such, but they organise information trips, information seminars and conferences in Germany with the participation of AHKs.
CE: To what extent is the investment climate of our country attractive for such big companies as BMW, Mercedes?
Tobias Baumann: For such kind of high-scaled production, there are many factors, which make a country an attractive investment destination. The size of the market is one of those factors; customs, for instance, is another important factor. If you make a production for the supply chain of a big company, you need easy customs regulations and low customs fees; otherwise, you will always have the customs system as a main challenge. Moreover, nowadays, huge car manufacturers like Mercedes, Volkswagen have just-in-time production strategy. International companies do not own big stores anymore and opt for just-in-time productions. This implies that the production has to be quick, reliable and cheap.
German business circles always support and are always in favour of the free trade arrangements
CE: Our road map covers the period until 2025. What are the long-term perspectives covering a 15-20 year period?
Tobias Baumann: I think nobody can predict the situation 20 years from now. The economic situation is so difficult and unpredictable worldwide as well as regionally right now, that nobody can make any real and reliable long-term assessments.
CE: Which global risks, affecting the region, do you see now?
Tobias Baumann: The whole concept of free and global trade seems to be at risk currently. The new US President Donald Trump has put some protectionist measures on the agenda of his Presidency. We have some similar anti-free trade movements also in many other industrialized countries, which are not always well reasoned, but unfortunately, strong. Some countries are still stuck in the debt crisis and their banking sectors need genuine reforms and restructuring.
CE: Mr. Trump has rejected TTP and there are negotiations held on NAFTA. What does Germany, the biggest world economy, think about it? What will be the impact of all these changes on Germany?
Tobias Baumann: Germany is a country with more than 80 mln people and we have several perspectives. However, German businesses have always been free trade-oriented and Germany has always been an export nation. Free trade, harmonised standards, good business relations, expansion into other countries, establishing production, creating international supply chains are always in the interest of the German economy. Therefore, in my opinion, German business circles always support and are always in favor of the free trade arrangements.
CE: What will be the impact on companies if the NAFTA agreement is cancelled?
Tobias Baumann: It is clear that the more restrictions you have, the more damage you cause to trade. Free trade zones and liberalised regimes bring benefits to both sides. Different countries offer different opportunities for businesses and you can take advantage of better conditions. Briefly, more restrictions will not create more trade and more wealth; more restrictions will rather lead to less wealth and less trade.
CE: Do you think that the Azerbaijani market is in need of liberalisation of prices and trade?
Tobias Baumann: Liberalised trade would also mean lower customs fee. We have a quite high percentage of customs fees in Azerbaijan.
CE: That is to say, the customs fees must be lowered.
Tobias Baumann: Of course, I would say yes.
CE: How much and in which cases?
Tobias Baumann. This should be a question of negotiations between government bodies. The governments have to agree upon certain trade regimes. As I already mentioned, Germany is an export nation and many German companies export to the world markets. It is always in the interest of those companies to have lower customs fees and customs controls. This is one of the crucial factors facilitating trade and making the goods cheaper for the people.
CE: Are the German companies interested in Azerbaijan’s successful entry in WTO?
Tobias Baumann: I would say, definitely yes. WTO requirements cover some basic standards on world trade, which are crucial for economic integration and which would definitely facilitate doing business also with German companies. I believe this would be of advantage if Azerbaijan sticks to the rules by adopting membership.
CE: Let’s suppose, Azerbaijan has become a member of WTO. However market regulation, protectionism and tax regulation are the tendencies running in the leading global economies, so are in the USA. It may mean that there will be no longer a free market. Can the same thing happen in Germany after the elections?
Tobias Baumann: Germany is a member state of the European Union and the trade policy is within the European field of competences. In other words, it is the EU Commission who defines the trade rules, which originally promotes the philosophy of the single market. Therefore, it is not solely Germany’s decision to abandon free market ideas and start regulating the economy.
The roadmaps indicate that the business and investment climate in Azerbaijan is going to be improved to attract more foreign direct investment
CE: You do have certain proposals regarding the improvement of the efficiency, commercial attractiveness of the market. How should the trade relations be improved?
Tobias Baumann: The roadmaps are a good start for this as they have listed almost all priority sectors in this country, and the necessary reforms that are going to be implemented until 2020. This is an indicator for foreign investors that something in terms of investment and business climate is going to be improved in this country. According to the Survey results from 2016, we can say that the government started to accelerate the reforms already in the beginning of 2016. The reforms concerning the customs regulations are notable examples. Therefore, I believe that the roadmaps are a good step and we will soon see which exact reforms are going to be there in order to attract more foreign direct investments.
CE: Could you please tell about the results of the poll?
Tobias Baumann: Generally, the findings revealed that the respondents assessed some business indicators very well, whereas some factors still needed to be addressed according to them. Qualification and productivity of employees received a positive rating from the respondents. Political and social stability, which is a very important factor for the region considering current political and economic environment in the close neighborhood of Azerbaijan, was the second best rated business indicator. The third best factor was infrastructure particularly in the non-oil sector. In the last 15-20 years, development of the oil and energy sector has mainly been promoted by huge investments in infrastructure and as the communication from the government signals Azerbaijan is now planning to develop infrastructure to promote the non-oil sector. This is one of the main expectations of the companies operating in Azerbaijan. Although the respondent companies perceive the economic environment challenging over the next 2-3 years, until 2018-19, their overall perspective with regard to long-term business opportunities in Azerbaijan is positive and that goes in line with what I said before; most of the companies envisages staying in the country and going through this difficult times, rather than leaving.
CE: Are there plans to attract German banks such as Deutsche Bank to the Azerbaijani market?
Tobias Baumann: Our banks are free to choose their locations and their business partners and there is no way that we could define, promote or decide on any of these factors. The Chamber can only provide the companies with the necessary information about the Azerbaijani market when required and offer a business platform for the German-Azerbaijani business community. We have German banks in Azerbaijan, i.e. Commerzbank and Access Bank, which are active members of the Chamber. Access Bank has profound experience in this market and it has been awarded as the Best Bank of Azerbaijan in 2016.
CE: Are there any visits and business forums expected this year?
Tobias Baumann: We will have the 3rd EU-Azerbaijan Business Forum to take place in May this year, with the participation of EU and German companies from various sectors. We are also planning to organise common projects with the Saxony Economic Development Corporation from Saxony, Germany. A number of projects and visits from Germany are currently under consideration.
Thank you for the interview