Importers into Azerbaijan must manage risks including customs delays and volatile transport costs.
Once one of the world’s fastest-growing economies thanks to its vast reserves of oil in the Caspian Sea, Azerbaijan is now looking outside the oil sector to boost its gross domestic product.
“The Azerbaijani government is seeking to diversify into other industries such as food manufacturing, construction and water treatment to reduce its dependence on the oil and gas sector,” says Loic Le Glas, route manager at SDV for the Caucasus and central Asia. “This is opening up more opportunities for foreign investors.”
Already, the government expects Azerbaijan’s gross domestic product to grow by five percent in 2013 and by 6.7 percent in 2014, largely driven by growth outside the oil sector. The country’s economy grew by just 2.2 percent in 2012.
Current foreign investors include French food group Danone, waste and water utility Veolia Environnement and engineering company Alstom. They join western oil groups such as BP, Shell and Exxon Mobil that have dominated the oil industry in Azerbaijan since the collapse of the Soviet Union in 1991.
Trade with Azerbaijan can be troublesome, however, for both importers and exporters notably because shipments risk long and costly delays at customs, says Le Glas. “You need to have good relationships with local partners so that they can help solve any problems,” he warns.
One SDV client, for example, a food manufacturer, sends a refrigerated truck every two weeks containing cheese and butter from France to Baku, the capital of Azerbaijan. Yet one in three of these trucks is regularly delayed at customs because it is missing a special certificate, he says. “This is not an easy place to work,” Le Glas notes.
Underscoring the problem, the World Bank ranks Azerbaijan 169th of 185 economies for ease of trading across borders. This measure looks at the procedural requirements for exporting and importing a standardized cargo of goods.
For overall ease of doing business, Azerbaijan ranked a more attractive 67th in 2013.
Situated in the South Caucasus, bordering the Russian Federation to the north, Turkey to the west and the Caspian Sea to the east, Azerbaijan is on a convenient route between northern Europe and central Asia and the Middle East. Most shipments come by truck and pass through the Turkish border, says Le Glas. Road transport is more flexible than rail transport, he adds, although rail can be used to transport ocean cargo arriving at the Georgian port of Poti.
As in other former CIS countries such as Kazakhstan, it can be costly to ship goods to Azerbaijan. While it costs around 3,000 euros to send a full truck from France to Turkey, it costs around 7,500 euros to send it from France to Azerbaijan, he says.
Prices are also volatile because of the lack of capacity. Le Glas estimates there are only around 15 trucking companies operating direct transportation between Western Europe and Azerbaijan via Turkey.
“The pricing can change from day to day,” he says.
To help its clients do business in Azerbaijan, SDV established an office in Baku at the beginning of this year. This office will help deal with domestic transportation and, more importantly, with local customs procedures. “You really need a presence on the ground,” says Le Glas.