In the disputed Caucasus territory of Nagorno-Karabakh, the Moscow-brokered ceasefire reached between Azerbaijan and Armenia in November 2020, which brought an end to more than a month of intense fighting, has opened the door to reconstruction and development.
Rovshan Najaf, Azerbaijan’s deputy minister of economy, spoke to The Banker about plans to rebuild and encourage foreign investors to invest in the mountainous region.
Q: What has the situation been like in the Karabakh region since the military conflict ended in November?
A: We’re dealing with a ‘ground zero’: all infrastructure and housing have been destroyed or vandalised during the occupation, the environment is devastated and significant areas of land mines must now be cleared.
The clearing work started immediately after the signing of the trilateral peace declaration between Azerbaijan, Armenia and Russia in November, and has already been completed in some areas, enabling rapid progress in the restoration and sustainable development of Karabakh.
Q: How do you plan to rebuild the region?
A: We have a four-stage plan. The first is security and governance. All liberated areas shall be cleaned of land mines and explosive remnants. We will reconfigure government structures and public institutions.
Second is rebuilding the infrastructure. ‘Smart city’ masterplans have been developed based on five components: housing, manufacturing, social services, ‘smart agriculture’ and alternative energy.
Azerbaijan has already begun a pilot project for a ‘smart village’ in the Zangilan district. Initially 200 individual houses will be built by early next year with low-impact and sustainable materials and technologies.
The banking sector is uniquely positioned to promote investment opportunities for the restoration and reintegration of Karabakh
Third, the government will create a network of social services for the returning population. Fourth is economic integration. Restoration and sustainable development of the economy in the liberated territories will focus on establishing a favourable business environment and conditions for the development of manufacturing, agriculture, tourism and other sectors, as well as promoting regional co-operation and attracting private investments.
Four regional hubs will be the focus for economic renewal: an industrial centre in Aghdam (the industrial heart of Azerbaijan in Soviet times); a logistics and trade centre in Jabrayil; a mining centre in Kalbajar (which holds large deposits of gold); and a culture and tourism centre in Shusha, which was recently declared the cultural capital of Azerbaijan by President [Ilham] Aliyev.
Q: Which sectors are you prioritising in the Karabakh region and where are the best opportunities for foreign investors?
A: A range of measures is being developed to create a favourable investment climate for both local and foreign entrepreneurs. These include new investment promotion mechanisms, preferential financing instruments, a preferential tax regime and tariff rates, as well as subsidies for social fee payments.
Currently five industrial parks and more than 50 agro-parks are successfully operating in Azerbaijan as state-private partnerships. This model is being rolled out in Karabakh as a major tool for ensuring sustainable industrial development. For example, Mr Aliyev initiated the construction of the Aghdam industrial park at a ground-breaking ceremony in May.
Green energy is a key priority. Karabakh is rich in renewable energy resources. Major hydroelectric power plants need restoring and there are opportunities for new plants. About 2.5 billion cubic metres of water annually is generated in the region. The potential of wind energy in the mountainous areas of Karabakh is estimated at between 300 and 500 megawatts. And solar radiation per square metre of horizontal surface is between 1600 and 1700 kilowatts per hour per year.
With Azerbaijan’s existing network of high-voltage power lines linking to neighbouring countries Turkey, Russia, Iran and Georgia, the potential to develop export as well as domestic markets for green energy is huge. The region’s geographical location and transit capacity potential provide opportunities for creating an international transport and logistics centre.
Q: What role can the banking sector play in facilitating the rebuilding of the Karabakh region?
A: The banking sector has a fundamental role to play in stimulating economic activity, establishing a competitive business environment and creating the financial leverage needed to realise Karabakh’s potential. This has three key components: direct financing, attracting investment and facilitating interactions between the state and entrepreneurs.
First, through financing both small and medium-sized businesses, as well as large-scale development projects, the sector has a direct role on the ground in Karabakh, as the region moves to reintegrate economically with the wider national economy.
Second, the sector is uniquely positioned to promote investment opportunities for the restoration and reintegration of Karabakh, attracting regional and global investors to participate.
Third, the sector has deep experience of facilitating state support for entrepreneurship, as well as boosting public-private partnership programmes. This will be vital for the balanced recovery and economic growth of the liberated territories.
