Beyond oil

The Eurovision Song Contest was Azerbaijan’s chance to show it can shine for things other than energy supplies

In brief

Azerbaijan has always been famed as an oil-rich territory. There’s no doubt, however, that hosting Eurovision earlier this year raised its profile and showed the world that the nation’s capital of Baku has plenty of other things to sing about.

Daniel Matthews
Daniel Matthews

It would be fair to say that when Azerbaijan won the Eurovision Song Contest in 2011 most viewers had little knowledge of the former Soviet republic, the largest country in the Caucasus region. A year on, Azerbaijan is firmly on the map.

“There’s been a restoration project in Baku that really went into high gear when Eurovision was announced,” says Daniel Matthews, managing partner at Baker & McKenzie’s Baku office.

The full-scale White City regeneration project began in 2010 and went into overdrive when news hit that Eurovision would be hosted in Baku in 2012.

“Once they knew Eurovision was taking place they redid the city in the space of a year,” Matthews adds.

For locals, the transformation has been even more impressive.

“Eurovision exposed Azerbaijan to a lot of people – before that point I don’t think many people in Europe even knew where Baku was or what Azerbaijan stood for,” says Ismail Askerov, co-director of MGB Law. “It boosted the image of the country, publicised it in a positive way and should lead to great tourism potential, which is something the Azeri government is interested in developing.”

Flagging energy

The main attraction in Azerbaijan is oil and gas. According to the State Oil Company of Azerbaijan (Socar), the country has estimated hydrocarbon reserves of 4.5 billion tons of equivalent fuel.

“Oil and gas is a broad sector in Azerbaijan,” affirms James Hogan, managing partner of Salans’ Baku office, who warns that it hasn’t been as fruitful as many had hoped.

“Almost everything in Azerbaijan is related in one way or another to the oil and gas sector,” concedes Hogan, “but so far only three projects since independence have turned out to be world-class, and oil and gas will not last forever.”

However, the sector is keeping firms busy in more ways than one, according to Ilgar Mehti, managing partner of Ekvita.

“Oil and gas always keeps firms busy, but it’s important to distinguish between the clients that are oil and gas companies and those that have issues in this sector such as related employment and litigation,” says Mehti. “As long as the industry maintains its present level there’ll be plenty of legal work to go around.”

There is a shift towards other work, note lawyers, who cite banking, property and infrastructure work as growing areas of interest.

“Around 40 per cent of our work nowadays is oil-related, compared with five years ago when we were more oriented towards oil and gas matters, so this shows how the market is gradually diversifying,” says Askerov.

Some, however, are more sceptical of the government’s attempts to expand other areas of the local economy.

“The government talks a lot about diversifying, but I’d say that 90 per cent of all foreign investments are still in the oil and gas sector, so it’s still fairly one-dimensional,” adds Matthews.

The Azeri government is making moves to make the country more transparent and attractive to foreign investors, notes Mehti.

“Changes in the international market have affected Azerbaijan, such as the UK Bribery Act,” Mehti says. “A large number of extraterritorial UK companies operate in the country so they’re aware of all sorts of corruption and therefore want to adopt day-to-day compliance measures.”

For Michel Nussbaumer, chief counsel at the European Bank for Reconstruction and Development, which has been working in Baku since 1991, although the country has come a long way since independence there is still room for improvement in terms of legislation and compliance.

“Although efforts have been made to improve the legislative framework most of the country’s legislation is not consistent with international standards,” says Nussbaumer. “To further pursue economic progress and lessen dependence upon the energy sector it’s vital that Azerbaijan upgrades its commercial laws and brings them into line with international best practice.”

But as Eurovision has shown, where there’s a will in Baku, there’s a way. The accelerated White City project saw five five-star hotels open in the capital with a six-month period.

“Many things could have gone wrong and yet everything went without a hitch,” enthuses Hogan. “In many respects the country has been a backwater since Soviet times and now it’s having its day in the sun.”

Key figures

GDP (2010) $51.7bn

Annual inflation (2011) 5.7%

Population (2011) 9.1m

Life expectancy at birth (2010) 71

Unemployment rate (2011) 5.4%

Source: World Bank and State Statistical Committee of Azerbaijan

Five things you didn’t know about Azerbaijan

1. Azerbaijan is nicknamed the Land of Fire. On the Absheron peninsula a hillside, Yanar dagh, burns all year round due to natural gas escaping the ground.

2. The country’s ‘oily rocks (Neft Dashlar), located in the Caspian Sea, is the first and largest town on stilts to be constructed at sea.

3. Former world chess champion Garry Kasparov was born in Baku and attended school there.

4. In the annual Seven Beauties competition seven girls compete to see who can crochet the highest quality stockings in the shortest time.

5. In Azerbaijan locals drink tea from a traditional pear-shaped glass and sip it through lumps of sugar or jam.