April 1999

by Judith Robinson

With a fast growing population of over 2 million, Baku, the capital of Azerbaijan, has been a population center since AD 885. Modern Baku juxtaposes the highly picturesque old town with its narrow alleys and ancient buildings, Soviet-era buildings, and modern three-star hotels and consumer and retail establishments.

Baku has become the focus of world political and commercial attention as a result of the discovery of rich oil deposits in the close-in offshore Caspian Sea. These resources promise major new oil sources for the markets of the West, income and prosperity for Baku and Azerbaijan as a whole, and a host of opportunities for Western investors.

In October 18, 1991, Azerbaijan declared its independence. That same year in Baku, the officials of the new republic began talks with the first of the consortia of Western oil companies who are now exploring for and extracting Azerbaijan's energy resources.

Fifteen of these consortia had been formed by early 1999 and, although some have recently folded and pulled out due to failed expectations of reserves and low oil prices, several more are in negotiations.

These consortia have generated several major areas of opportunity for Western companies in Azerbaijan:
--The large production-sharing agreements signed by the oil consortia carry present subcontract opportunities in oilfield servicing and equipment supply. Western companies have the best chance where highly sophisticated, state-of-the-art technology is required.
--Infrastructure and construction contracts, particularly in the City of Baku, will be signed to meet the burgeoning power, transportation, business facility, housing, and consumer requirements as Western and Azerbaijani business officials and working people flow into the capital.

Baku represents a natural transportation hub for westward-bound oil flowing into its terminals from Azerbaijan's offshore (and onshore) fields and from Kazakhstan, and potentially for gas from Turkmenistan. A number of contracts for the rehabilitation or construction of pipelines and railroads to Western markets will generate services and supply contracts; some of these contracts with specialized or high-technology content will probably be awarded in the West.

Baku's citizens present Western investors with a fertile source of partnerships and employees. About two-thirds of the country's urban population (53 percent of all citizens) live in the capital. The country's general education level is high, tends toward technical specializations, and in Baku, generally exceeds the country's average of 9 years for both men and women. The population is also relatively young, with only 15 percent over 50 and one-third under 14 years.

Western companies hoping to do business in Baku are strongly advised to go there, establish contacts, set up a presence, and, above all, demonstrate a long-term intention and commitment to do business there.

Some information provided by the U.S.-Azerbaijan Council, Washington, D.C., tel: (202) 662-1343, fax: (202) 737-6866.

Judith Robinson covers Azerbaijan for BISNIS.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)