Will the departure of foreign companies from Azerbaijan hurt the economy?
Experts in Azerbaijan are unsure what to think about the departure of foreign companies from Azerbaijan. According to some analysts, it is an indication of the deteriorating business climate in the country; other experts say that the reduction in the number of foreign companies operating in Azerbaijan is not going to drastically affect the country’s economy.
Several large foreign companies have left the country since last year, including Kempinski Hotel which is owned by Royal Dutch Shell.
Several large foreign companies have left the company since last year, including Kempinski Hotel, which is a daughter company of the Royal Dutch Shell. Another daughter company of RDS, Shell Business Development Central Asia BV, has also announced its imminent departure from the country.
During the first six months of 2016, foreign companies without Azerbaijani shareholders increased threefold compared to 2015, bringing the total to 5,987, according to the State Statistics Committee.
In the first six months of 2016, 45 companies have already left the country. In 2015, only 64 companies left Azerbaijan over the course of the year.
In 2011, President Ilham Aliyev attended the opening of the Kempinski Hotel Badamdar. After four years of operation, it has decided to leave the country. On July 31st, Badamdar Hotel Baku continued operations at the former Kempinski location.
The hotel’s marketing manager, Farah Najafova, said in an interview with BBC Azeri that Kempinski’s decision to leave the country had nothing to do with economic reasons.
Kempinski and the Kempinski Hotel Badamdar franchise management agreed to a bilateral contract termination. At present, negotiations are underway with the well-known international hotel brand and a company representative said the change would not affect the hotel’s staff.
Economic analyst Samir Aliyev believes that more and more foreign companies will leave the country “due to the unchecked monopoly” which is associated with difficulties in working in the country.
“It is a factor that prevents the arrival of foreign companies in the country. It has a negative impact on Azerbaijan’s image, and also fails to attract foreign currency and makes access to credit more difficult,” the expert says.
When these companies leave the country, he says, they are replaced with less experienced companies who are unable to match the high level of service.
Samir Aliyev added that attracting foreign investment to the country, the introduction of new technology and the creation of high-quality services is in the best interest of the country.
They should provide local industry and then they could compete with foreign companies.
Are the numbers an indicator?
Ilham Shaban, an expert on the oil and gas industry, comments that “those who have left the country hadn’t been in Azerbaijan for some time, but are only now legally declaring it.”
According to him, companies that left the oil and gas industry in Azerbaijan hadn’t shown any business activity for three years prior.
“They expected that the output would result in new contracts and that they could take part in those projects. But they saw that oil prices fell in 2014, 2015 and 2016; 2017 is still indefinite. Therefore, they’re going to leave. There’s no point in remaining here at this point,” the expert says.
Mr. Shaban says that some companies have left while others have come. “There is no point in comparing foreign companies in the country,” he said.
“Shah Deniz was signed for 15 billion dollars. Some companies couldn’t even get in on the contract. Instead of them, companies came in from the Netherlands, Norway and Australia. Azerbaijan has more contracts than ever before,” he said.
“The reason for companies leaving Azerbaijan is because of their own policies,” Mr Shaban said, and added, “in 2017, Azeri-Chiraq-Guneshli field will sign a new contract for 8 billion USD, which will attract more foreign companies.
In 2015 the manat was devaluated twice and there were 412 new foreign companies registered. Compared to 2014, it means there was a 22 percent decrease. During the first six months of this year, there were 251 new foreign companies. Further depreciation of these numbers is expected.