Azerbaijan as a regional hub in Central Eurasia
A Conversation with Taleh Ziyadov
Research Fellow, Azerbaijan Diplomatic Academy
PhD Candidate, University of Cambridge (UK)
Azerbaijan in the World: Your study on Azerbaijan as a Regional Hub in Central Eurasia was recently published. What was your objective in preparing this work?
Taleh Ziyadov: The book, Azerbaijan as a Regional Hub in Central Eurasia, is the result of a four-years long process that started in 2008 at the Azerbaijan Diplomatic Academy (ADA) as part of ADA’s multi-faceted research project “Azerbaijan 2025: Strategic Outlook of the Country” (not to be confused with the on-going Azerbaijan 2020 initiative of the Azerbaijani government, AIW). The idea is to use these research findings and contribute to the country’s on-going plans to develop a sustainable development model of future Azerbaijan.
As one of the components of ADA’s “Azerbaijan 2025” project, this particular study has been focused on investigating current trends and dynamics in Euro-Asian trade. Its main objective was to identify potential advantages and common interests, projects and areas of greater cooperation between regional states along the ancient Silk Road that would strengthen Azerbaijan’s position as a strategic transportation and logistics hub in Central Eurasia.
AIW: Your study opens with an argument that “[t]he success of Central Eurasia hub strategy largely depends on the ability of the regional states to attract some of … Euro-Asian … container trade” currently “conducted [mostly] by maritime transportation via Suez Canal” [p. 11]. Given that maritime transportation—and trade based thereon—has largely replaced land-based trade routes, do you not think an effort to re-introduce the past dominance of continental trade, if successful, would in fact be a step backwards as far as historically conditioned global evolution and progress is concerned? If one assumes a global, rather than nationally-circumscribed perspective, could we not view such efforts as a human’s negative intervention in the progressively evolving historical forces, if you like?
Ziyadov: It is true that today the majority of the trade between Europe and Asia bypasses our region, and so do the attendant benefits. Large ships that can carry thousands of containers at a time have replaced the ancient caravans of the Silk Road. Nevertheless, the potential economic reward for commercial and transport-related development in Central Eurasia is enormous, and the realization of this potential will benefit the region as a whole. In other words, the re-introduction of continental trade in Central Eurasia need not be viewed through the prism of which mode of trade should dominate, maritime, air or land-based.
Maritime transportation did not come to dominate the Euro-Asian, or global trade for that matter, all at once. It took a long time before the industry came up with new solutions such as containers and large ships for affordably transporting big volumes of goods across continents. The inland continental trade, in contrast, disappeared because the traditional modes of transportation used along the Silk Road such as camels, horses, mules, and the like became expensive and obsolete, and the complex and well-organized logistics network of Eurasian commercial hub cities collapsed.
In addition to large container ships, industry also uses airplanes and freight trains to transport cargo between various destinations. These sectors also innovate and propose their own solutions. Although the maritime transportation is the cheapest, it is nonetheless the slowest. Air transportation, on the other hand, is the most expensive, but the fastest option. Transportation by train is somewhere in between. So reviving continental trade through Central Eurasia would require innovative approach from the private sector and demand adequate steps by the governments in harmonizing all regional transportation projects in the Caucasus and Central Asia, so that this once dominant route of continental commerce revives itself.
There are several examples when innovation by the industry has helped to revitalise hitherto unviable transportation corridors. For example, the freight transportation between America’s West coast (California, Oregon and Washington) and its Midwest (Michigan and Illinois) has traditionally been dominated by trucking industry. Transporting cargo by trains was too costly and slow. Faced with these challenges the rail freight transport industry came up with innovative solution, which was to develop track platforms that allowed carrying containers in double-stock formations. This simple, yet revolutionary, idea has altered the whole picture in the rail transportation business and made rail freight transport affordable, fast and the dominant mode of shipment between the West coast and the Midwest in the US.
AIW: What is your assessment of the state of affairs in the economic realm of Azerbaijan’s current existence, particularly in light of where the country comes from (post-Soviet transition) and the kind and amount of work carried out to date? Which efforts so far have proved successful and what are the challenges that still need to be addressed?
Ziyadov: Azerbaijan is not only post-Soviet transition economy, but also a resource-rich state. As such, it faces specific challenges that resource-poor transition states may not have. Its oil wealth is its biggest advantage and managing this wealth is its biggest challenge. So far, Azerbaijan, along with Kazakhstan, has managed to avoid many of the major problems associated with oil wealth that have haunted many resource-rich states in the past. This was largely due to high oil prices and a disciplined macroeconomic policy. The oil revenues allowed the country to increase its GDP fourfold and start implementing strategic infrastructure projects both in energy and non-energy sectors that will be building blocks of the country’s future economic performance. In particular, developments in transportation and IT sectors could be highlighted separately, including the on-going construction of the Kars-Akhalkalaki railroad and the new Alyat port and the expansion of e-government services for small and mid-size businesses.
In recent years, Baku has made economic diversification a central policy. While economic diversification is a trendy policy among many resource-rich states, it is not easy to implement and sustain. Diversifying an economy that has traditionally been dependent on production of natural resources requires an explicit strategy and a political zeal. Considering Azerbaijan’s relatively small size, with only nine million inhabitants, any domestic demand-led economic growth is likely to be short-lived. Consequently, the country needs to pursue the foreign demand-led non-oil GDP growth strategy, which essentially equates to growth driven by Foreign Direct Investment (FDI). Azerbaijan has successfully used the FDI driven growth strategy in its energy sector, and it could as well expand this strategy to the development of its non-oil sector.
AIW: What is your broader vision for Azerbaijan’s future economic development? Is there any concrete model upon which you suggest the latter should rest?
Ziyadov: The future of Azerbaijan’s economic development depends on the country’s ability to build a sustainable, competitive and diversified economy making full use of its comparative advantages. Here, the role of transportation and logistics sector, as well as other non-oil sectors such as IT, tourism and agriculture will be important. Based on findings from the study, the necessary trajectory for Azerbaijan requires a coordinated effort at both national and regional levels. Nationally, the government needs to align all its major development projects under a single objective. In the non-oil sector, the study recommends focusing on two projects that are directly linked to Azerbaijan’s grand hub strategy and that could generate significant FDI in the non-oil sector and raise the stakes in the country’s Free Economic Zone (FEZ) development. This means that the two key projects—the Port of Alyat and Heydar Aliyev International Airport in Baku—should be incorporated into the FEZ concept, which in turn must be constructed on a flexible and effective legal framework (i.e. Production Sharing Agreement). At a regional level, Azerbaijan needs to harmonize its transport strategy with that of neighbouring states, particularly Georgia, Turkey and the Central Asian countries along the East-West axis, and Russia and Iran in the North-South direction. If implemented properly, this strategy could help the country’s transformation and contribute to achieving the goal of building a modern, competitive and developed Azerbaijan by 2030.
AIW: You noted two key projects, both in transport, around which Azerbaijan’s non-energy development strategy should revolve. Yet it is the IT and tourism sectors that currently represent key non-oil areas around which the country’s development agenda is pursued. Do you suggest a focus on transport should develop in parallel with the current emphasis on IT and tourism or should it rather replace it?
Ziyadov: None of these sectors can be developed in isolation from each other. What I mean is that the government needs to adopt an integrated “bird’s eye approach” in developing the non-oil economy in a way that would mobilize and align all of the country’s resources and projects towards achieving a single strategy.
AIW: Finally, is there, in your eyes, any historically known development path Azerbaijan could replicate in devising its mid- to long-term development strategy?
Ziyadov: Each country devises its own destiny, but there are specific lessons that Azerbaijan could learn from countries like Malaysia, Dubai and Singapore. The first two are known for their deliberate and forceful diversification strategies, while the third is a good example of a resource-poor country’s outstanding vision and economic performance in achieving a level of economic development that many resource-rich states could only dream of.
To become a successful economic model in the twenty-first century, Azerbaijan needs to carefully formulate its strategy and do it now. Azerbaijan of 2030 or 2050 will be the product of today’s concept sketches. The country has the potential to be a true gateway to Central Asia for Europe and a door to Europe for Central Asia and China. It has the potential to become a “hub of hubs” in Central Eurasia—a vision that is yet to be fully studied and understood, but one that has great prospects if selected.
Note: Copies of Mr. Ziyadov’s study, Azerbaijan as a Regional Hub in Central Eurasia (Baku: ADA, 2012), can be purchased from the ADA Book Center. For further detail, write to firstname.lastname@example.org.