Ross Wilson, U.S. Ambassador to the Azerbaijan Republic, arrived in Baku in October 2000. Ambassador Wilson shares his thoughts with Contact on the U.S.-Azeri commercial relationship and offers an outlook for 2002.

During my first week in Azerbaijan, I welcomed the arrival of two new Boeing 757's to Azal's fleet. This marked an important milestone in U.S.-Azeri business relations and demonstrated the potential for U.S. business in Azerbaijan. 2002 will be a year of significant investment in Azerbaijan's vibrant oil sector, and the U.S. business presence here can grow rapidly in other areas, provided that the right market conditions are in place.

Turning Stability into Opportunity

Azerbaijan's macroeconomic strides are demonstrated by a stable manat, low inflation, and solid relationships with the international financial institutions. The July 2001 upgrade of Azerbaijan's Fitch/IBCA country rating to BB minus is a reflection of these improvements and will lower Azerbaijan's cost of borrowing for major oil, gas and other infrastructure projects. Responsible fiscal management and major oil revenue windfalls have given this country a unique opportunity to carry out structural economic reforms that will ensure sustainable, long-term growth. The key in 2002 will be to turn past and present macroeconomic successes into jobs, grow small and medium enterprises, and create economic opportunities for all levels of Azeri society. Azerbaijan needs to duplicate its success in attracting world-class oil investors by removing impediments to business outside the energy sector. This will unleash the creative, entrepreneurial energies for which the Azeri people are famous. It will also mean increased bilateral trade and investment for our two countries - a stated priority of President Aliyev.

2002 will mark an important new phase in Azerbaijan's economic reform efforts and ability to attract foreign investment. Full field development of the giant Azeri-Chirag-Guneshli oilfield is underway and will result in over $10 billion of investment in coming years. ACG Phase One construction, sanctioned in August 2001, will result in $1.7 billion worth of spending in Azerbaijan -- and opportunities for U.S. and Azeri firms to partner. Sanctioning of the Baku-Tbilisi-Ceyhan pipeline is expected in the summer of 2002, with approval of the Shah Deniz gas pipeline shortly thereafter. Major U.S. construction and engineering companies, including McDermott, Halliburton, and Bechtel, are bringing world class experience to these major projects and can pave the way for small and medium size companies to become sub-suppliers and develop business here. But Azerbaijan has much more to offer the global marketplace than oil and gas, provided that the right investment environment is in place. This country's developed infrastructure and favorable geographic location make it an excellent hub for Caspian regional trade and investment. Recognizing the rapid growth of energy investment in the northern Caspian, Azerbaijan needs to take action now to develop a regional airline and transport network, a system of bonded warehousing, agricultural processing centers, and regional oil and gas equipment/maintenance service centers to support Caspian energy development. Certain parts of the dormant oil and gas equipment industry can be retooled and restructured to attract strategic investors. However these assets must be carefully structured for privatization, including debt restructuring, resolution of any legal and environmental liabilities, and preparation of detailed information memoranda.

Revitalization of the agricultural sector will create hundreds of thousands of jobs in this country and enable it to reclaim traditional agricultural export markets in the former Soviet Union and Turkey. For U.S. companies, this means opportunities in processing, distribution, and packaging for foreign and domestic markets. Azerbaijan must demonstrate its comparative advantage to attract U.S. investors and allow them to operate successfully.

Azerbaijan and the Competition for International Capital

The events of September 11 have reduced already diminishing expectations for global economic growth. Some analysts estimate that foreign direct investment in emerging markets will fall by up to forty percent. Azerbaijan desperately needs inward investment to rebuild its economy and will have to work even harder to overcome the skepticism of risk- averse investors. How can Azerbaijan achieve this? First and foremost, a well-managed, articulate privatization program will need to be designed and implemented. Advice from the international financial institutions and international investment banks can be used to restructure assets, attract quality strategic investors, and bring revenue to the Azeri treasury. Second, it should strengthen the strong legal system, particularly in the commercial area. A functioning Arbitration Tribunal that can fairly and swiftly adjudicate commercial disputes would be a positive step forward. Third, Azerbaijan needs to make further progress in separating government regulatory responsibilities and commercial interests. Too often, governmental entities are both licensor and joint venture partner, which leads to the appearance of conflicts of interest and threatens shareholder rights. Fourth, a functioning Investors Council, reporting to the president, can bring key issues and concerns for resolution at the highest level. The business community hopes to see such a council convene soon. Finally, fair and predictable tax administration and adoption of international accounting standards by all commercial structures will bring greater fiscal transparency and improve corporate governance.

Supporting U.S.-Azeri Business Development

Among my highest priorities as Ambassador are promoting economic reform and supporting U.S.-Azeri trade and development. The U.S.-Azerbaijan Task Force on Economic Cooperation meets regularly to discuss economic policy and how we can work together to foster trade. The U.S. Trade and Development Agency and the Ministry of Economic Development have agreed to place a WTO Advisor in the government in 2002 to advise on trade issues, help identify and remove key barriers to doing business, and assist in preparing this country for WTO accession. The U.S. Agency for International Development also has a strong portfolio of initiatives to support small and medium enterprises, microlending, and rural development. The easing of Section 907 restrictions will allow these efforts to be matched with government-to-government assistance on key policy reform issues.

While the efforts of our two governments can help to create a level playing field for doing business in Azerbaijan, the private sector will be the engine for economic reform. The presence of over seventy-five U.S. firms in Azerbaijan is only a fraction of the potential for American business in this country. The U.S. Embassy's Commercial Service has an active business development portfolio, with a focus on market-ready Azeri firms that are seeking partnerships with U.S. firms. In addition to its core services tailored to U.S. and Azeri clients, in 2002 the Embassy's Commercial Service will be launching an on-line initiative through www.BuyUSA.com to develop Internet-based business partnerships between our two countries. The Embassy's Commercial Service will also be leading trade missions of Azeri firms to major exhibitions in 2002 and will duplicate the success of the 2001 Caspian Finance Seminar during the Caspian Oil and Gas Show in June 2002.

The Caspian Finance Center (CFC) based in Ankara supports trade and project finance in Azerbaijan and throughout the Caspian region. The CFC houses the U.S. Export-Import Bank, Trade and Development Agency, and Overseas Private Investment Corporation to provide a one-stop financing shop for U.S. companies active in the region. In addition to the Boeing deal in 2000, Exim is also reviewing transportation and energy projects for further financing in the coming year. TDA has initiatives in the information, telecom and energy sectors. A $600,000 TDA grant for a feasibility study to upgrade the Baku refineries and Port of Dubendi was signed in August 2001, and a project director will be named in 2002.

The American Chamber of Commerce in Azerbaijan (AMCHAM) and the U.S.-Azerbaijan Chamber of Commerce (USACC) are key allies in support of U.S. -Azeri business development. AMCHAM has maintained a strong dialogue with the Azeri government on tax, customs, and other areas of interest to U.S. and Azeri companies here. An AMCHAM White Paper, presented to President Aliyev in July 2001, serves as a blueprint to improve the business climate, and I have encouraged the Azeri government to review and adopt its proposals. The USACC, located in Washington, is well positioned to represent U.S. and Azeri business interests and forge commercial relationships. The truth is that many U.S. companies know little about Azerbaijan and the business opportunities here. The USACC annual conference in 2002 will highlight trade and investment opportunities to get Azerbaijan "on the map."

Success Breeds Success

Domestic and foreign investors instinctively know good deals when they see them. They also know when project risk outweighs net project value and will take their dollars elsewhere. In Azerbaijan, the key is to develop project successes to attract the sustained interest of U.S., Azeri and international investors. Economic reform in East-Central Europe in the 1990's was propelled by a strong inflow of foreign direct investment, as private equity and portfolio investors led the charge into the Wild East. Azerbaijan still needs to whet investors' appetites and pursue the reforms needed to attract investment capital. It can do this by encouraging quick and successful implementation of existing investment projects and supporting investors, domestic and foreign, with bankable projects. Global markets and private investors will take note, as some have already.

The Road Ahead in 2002

Major decisions on energy transportation and offshore oil development will be made in the coming year based upon the commerciality and the strength of these projects. I am confident that they will move forward and create opportunities for U.S.-Azeri business partnerships. The key challenge is to focus on building a friendly business climate that will encourage investment. I encourage U.S. and Azeri firms to come to the Embassy, meet with our staff, and discuss how we can support your business development efforts.