Economy

Multiple Choices

Azerbaijani FDI Overseas

Hydrocarbon revenues have long been channeled into overseas investments as a hedge for future generations. Azerbaijan is now diversifying its investment portfolio to complement its economic strengths.

Acting as the nation’s sovereign wealth fund, the State Oil Fund of Azerbaijan (SOFAZ) began purchasing real estate abroad for the first time in 2012, with interests in locations such as France, the UK, and Russia. In line with new regulations that allow 5% of the SOFAZ investment portfolio to be invested in real estate, commercial properties worth £177.35 million, ‚¬135 million, and $133 million were purchased in London, Paris, and Moscow, respectively, by early 2013. With its sights set on investing in more real estate abroad, SOFAZ is gearing up to add more diversified assets to its portfolio. Meanwhile, the State Oil Company of Azerbaijan Republic (SOCAR) is continuing to focus its strategic investment activity on larger oil and gas projects in the region. Strategically, Azerbaijan is investing abroad to boost its knowledge transfer, mitigate the effects of excessive money supply, and secure the wealth of the nation for generations to come.

In total, Azerbaijan’s foreign investment abroad reached $6 billion from 2003 to 2011, putting it on the same level as many European and Western nations. According to a UN Conference on Trade and Development (UNCTAD) report, FDI in 2011 alone was valued at $533 million, significantly up from the $232 million invested in 2010.

Highlighting the key recipients of theAzerbaijani FDI program, Shahin Mustafayev, Minister of Economic Development, explained that “Azerbaijan has invested billions of US dollars in Turkey, Georgia, Russia, Uzbekistan, Ukraine, Romania, and Switzerland,” adding that the country “has become a reliable partner in terms of maintaining the energy security of Europe.” The largest of these benefactors is Turkey, which has received approximately $4.5 billion in FDI from its eastern neighbor.

In particular, SOCAR has worked toward the mutual success of the Turkish and Azerbaijani petrochemicals industry by investing in a project that manages and expands the Petkim Petrochemical Complex. SOCAR plans to build a state-of-the-art refining plant, power station, and a new terminal in Turkey, a diversified project that is expected to provide quick investment returns. The Petkim complex falls into the preferable category of commercially reliable projects that SOCAR has been heavily involved in over the past few years, in addition to oil transport lines in Georgia and the Trans-Anatolian Pipeline (TANAP) initiative. These investments have also contributed to knowledge transfer in the regional energy sector.

In addition to SOCAR’s work, there are 844 companies in Turkey operating with the support of Azerbaijani capital, and investors in the construction, tourism, real estate, energy, and transport sectors have plans to invest a combined total of $17 billion more in Turkey in the years leading up to 2018.

According to Shahmar Movsumov, Executive Director of SOFAZ, the fund’s purpose is to convert non-renewable natural resource revenues into a diversified portfolio of international financial assets, which are then expected to generate a perpetual income for current and future generations.

Further activity in new markets, especially in Southeast Asia, could boost ties between Azerbaijan and emerging markets, as well as lead to long-term trust and other areas of economic potential. Summing up the role of Azerbaijani FDI in a February 2013 speech, President Aliyev remarked, “Investment in foreign countries primarily diversifies our investment portfolio. All the same, we, as investors, win a great trust in most countries. Thanks to this trust, in the future our export potential to these countries will also grow.”

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