Azerbaijanmainly derives its revenues from oil and gas exports. Its considerable economicgrowth in the mid-2000s slowed down after 2006, partially due to reduced oilproduction.
This reflects the high dependence of Azerbaijan’s economy onnatural resources. Pressure to diversify its economy is increasing. The non-oilsector, in particular construction, telecommunications and banking services, issteadily growing, however it is mainly supported by oil financed, unsustainablegovernment spending. The agricultural sector employs 40% of the population butcontributes only 5.2% to the gross domestic product (GDP).
Azerbaijan wasdeclared as the world’s top regulatory reformer in the World Bank’s 2009 DoingBusiness Report, but competition is still hampered. While Azerbaijan iscompliant with the Extractive Industries Transparency Initiative (EITI) and hasintroduced some formal anticorruption measures, it continues to suffer fromhigh perceived levels of corruption. The general Azerbaijani population isbenefiting to some degree from the large revenues derived from naturalresources. This positive development is reflected in the country’s decreasingpoverty rate, from 43.7% in 2003 to 7.6% in 2011. IDP’s and refugees constitutethe poorest and most vulnerable segment of the population.Georgia has been going through verydamaged and difficult stage of development.
During the yearly period, it wasinvolved two ethno-conflicts, into the different part of state, which wasencouraged by Russia. Georgia was faced to necessity of launched new tradeconnections and find new partners. From that period Georgia set up and hasexperienced pro-western foreign policy. Today, Georgia is strongly strivingtowards Euro-Atlantic integration. Apart the other neighbors, it has the deepestrelations with EU. Yet, in 2012 Freedom House qualified Georgia as only ‘partlyfree’.
The lack of independence of the judiciary remains a major concern. Thearmed hostilities with the Russian Federation in 2008 and the economic crisisat that time pushed the country into a deep recession. However, in the past fewyears the Georgian economy has slowly recovered with a growth rate of above 5%.
According to World Bank, GDP is 13.965 $ billion (2015). Major reforms arebeing carried out following a neo-liberal approach, including in socialservices. Agriculture remains one of the sectors with the biggest growthpotential, employing almost half of the total working population.
Following the breaking up of the SovietUnion, the South Caucasus experienced a full economic fragmentation. FormerSoviet States were faced to necessity of launched new trade connections andagreements. Additionally, the political elites were vigorously engaged inbuilding ethnically-defined nation states, whereas the strenuous battle togetting power. They also struggle for domination over the economic resources ofthe newly independent states. In the South Caucasus, these processes wereexaggerated by nationalistic rhetoric and policies that led to violentconflicts. One of those conflicts has been over the Nagorno-Karabakh regionbetween Armenia and Azerbaijan. Turkey closed the rail and air connections withArmenia and halted the transit of humanitarian aid through its territory toArmenia in 1993. Today, Armenia has two “gates” to the world – Georgia to thenorth and Iran to the south.
On my point of view, these “gates” are largelyinappropriate for the establishment of regional economic cooperation and theimplementation of transnational projects. Out of the 1,500 kilometers of land border that Armenia shares with itsfour neighbors, only about 250 kilometers are open for transnational economicrelations. Armenia has well established relations with Georgia and theircurrent economic ties are crucially important for Armenia, as Georgia is themain transit country for Armenia. Iran and Armenia have developed energy andtrade cooperation even though Armenia’s major trade and economic partners foreither state or private business actors is Russia. With an active flow ofremittances and investments from Russia, its role in Armenia’s economy ismajor. Recently Armenia deepened its economic integration with Russia withinthe framework of the EAEU along with Belarus, Kazakhstan, and Kyrgyzstan.
Inthis context, Armenia could potentially benefit from new opportunities gainingaccess to the EAEU markets. On the other hand, Armenian businesses have almostone-sided economic relations with their Turkish counterparts. Goods from Turkeyenter Armenia, but no major trade flows are going from Armenia to Turkey.Georgia plays an important role in the socio-economic relations of the SouthCaucasus since it is the transit country for regional transport and energyprojects.
Currently, Georgia has substantial socio-economic cooperation withall neighboring countries.In my opinion, there are variousmotivations for economic cooperation between countries in South Caucasus.Economic factors, historical links, cultural ties and social factors arestimulating and necessitating economic cooperation between countries.
Inaddition to this, the geographical proximity and unity of the countries in theregion is a conducive and encouraging factor for the formation of economicco-operation agreements. Although, there are no economic or diplomaticrelations between Azerbaijan and Armenia. It means that Armenia doesn’tparticipate in any regional or transitional projects.
It has resulted duringthe formation of a new East-West Silk Road through Georgia to Europe viaTurkey. As a network of major present transportation corridors, Azerbaijan andGeorgia are becoming vital transit links between East and West. The economiccooperation between Azerbaijan, Turkey and Georgia has been developed throughmega projects in energy transportation. There is free trade agreement between Turkeyand Georgia now.
As well, Georgia and Turkey get visa free regime for theircitizens. All of these three countries are trying to get benefit from therecent regional connectivity initiatives to boost trade, increase foreigndirect investments and growth its economy. Azerbaijan has borders withKazakhstan and Turkmenistan via the Caspian Sea and it has land borders withGeorgia, Russia, Iran, Armenia, and Turkey. Azerbaijan’s cooperation withGeorgia and Turkey is focused on natural resources and excludes Armenia due tothe Nagorno-Karabakh conflict. Azerbaijan has the richest oil and gas reservesin the region and therefore plays an important role in major energy projects. Inaddition, Azerbaijan is one of the sponsors of the East-West and North-South transportcorridors.The development of transportinfrastructure is also one of the main priority of Azerbaijan.
Today it isrestoring the historical Silk Way with the application of modern technologiesand the participation of neighboring countries. At present, theBaku-Tbilisi-Kars railway – running from Azerbaijan through Georgia and intoTurkey – is under construction and will for the first time connect Azerbaijanwith Europe by train.This project will effectively open a newrail-only corridor from the Caspian Sea to Europe via Turkey, eventuallyexcluding the need for sea transportation once the planned rail tunnel underthe Bosporus Strait in Istanbul is complete. Once the railway was fullyoperational, all three countries will mutually benefit from improved trade andeconomic relations and gain additional Foreign Direct Investments (FDI) throughthe new railway connecting Europe and Asia. According to the internationalinterest of Georgia, the Baku- Tbilisi- Kars Railway is expected to enhanceGeorgia’s status as a transit country, and developing a strategic alliance withTurkey and Azerbaijan. The Kars-Akhalkalaki-Baku railway line promises otherbenefits for Georgia. As well, railway line is the direct ground route betweenBaku and Istanbul. According to analysts, the railway has the potential toattract freight, including oil, from Central Asia to Turkey by offering afurther outlet to the sea.
Caspian traders have a possibility to deliver itsoil by rail directly to European purchasers. They will obviously save money andtime if skip tanker routes by The Black Sea. Georgia could offer two differentoil transit routes to Europe, by sea and by land. It’s making the country animportant part of the transport corridor linking Asia, the Caucasus, and Europe.
The Southern Gas Corridor (SGC) is a termused to describe planned infrastructure projects aimed at improving thesecurity and diversity of the EU’s energy supply by bringing natural gas fromthe Caspian region to Europe. The South Caucasus Pipeline (SCP) was built toexport Shah Deniz gas from Azerbaijan to Georgia and Turkey. Because of theimplementation of the “Southern gas corridor”, a number of countries will gainaccess to the Azerbaijani gas as an alternative gas reserve. Georgia, Turkey,Greece, Bulgaria, Albania and Italy are among the participants of the “Southerngas corridor” project. So, Azerbaijan and Georgia become a very important andreliable partner for providing the energy security policy of Europe.
In conclusion, in this paper we discussedabout the current situation in the South Caucasus, as well as the prospects forregional cooperation and integration. The article diversified some strategicdirections, which would have significant mean for future development of thisregion, meanwhile it depends on European Security policy and also global traderoutes. Considering the recent economic developments and attempts towardseconomic integration between Azerbaijan, Turkey and Georgia and other megaprojects from Central Asia to Europe making the South Caucasus a transitregion, showed that this transportation corridor is a new strategic andsignificant one for Western and European countries in energy security policy.
Convinced that regional economic cooperation could be an important step towardsconflict transformation in the South Caucasus, this paper suggests that theprospects of such integration be considered. South Caucasus which has functionas a bridge between Europe and Central Asia, has been improved its strategic importancethrough mega pipeline projects, which are transporting crude oil and naturalgas from Central Asia, Caspian and Iran to Europe.