Autocracy in Azerbaijan threatens long-term investment

Autocracy in Azerbaijan threatens long-term investment

Despite enjoying rich energy resources with which to tempt FDI, Azerbaijan’s autocratic political climate remains a long-term liability to said investment.

In Azerbaijan, foreign investment opportunities and geopolitical considerations take precedence over international calls for political reform. The country represents a foreign investor’s dream: a one-stop shop for energy resources essentially controlled by the strongman dictator Ilham Aliev. For oil companies, in particular, the system is appealing. Aliev’s tight control on the political system allows companies to avoid layers of bureaucracy and oversight typically reserved for democratic systems. Azerbaijan’s parliament is a mere appendage of Aliev’s rule: it has not once turned down or even returned for review an oil contract put before it.

The future of Azerbaijani energy production seems promising. As Europe seeks to diminish its dependence on Russian oil, Azerbaijan (with resources pumping through Turkey) has emerged as a potentially valuable alternative source. But Azerbaijan may not be as stable or as investor-friendly, as it appears on the surface. Major problems exist for investors in the long-term.

Autocracies such as Azerbaijan are inherently unstable. With leaders capable of pushing their economic agenda without consulting or appealing to a fickle and critical legislature, judiciary or media, economic growth and development can improve more rapidly than in countries constrained by such staples of more balanced systems. Conversely, autocrats implementing policy without apt oversight, and without a collective entity weighing the consequences of policy, are likely to cause major damage.

Another reason for the inherent instability is the impermanence of the leadership structure, particularly in a zero-sum battle for political power. Autocrats fuel societal resistance by resorting to even more repression in the face of political challenges, and when they are eventually deposed, the power vacuum created in their absence makes a country ripe for political and economic turmoil. Years of repression, too, embolden extremists who are left to vie for control in an abrupt absence of leadership. Iran comes to mind. Lastly, if autocrats do not feel beholden to their population, there is little chance they feel beholden to the requests of outside powers. There is no such thing as long-term stability in a country at the whim of an individual.

In Azerbaijan, a patronage structure that runs along regional and ethnic lines exacerbates the likelihood of future instability. This has in the past diminished tensions between groups, but in the absence of leadership, groups could gravitate to their extremist elements for protection or competition with others.

The nature of Azerbaijan’s political system revealed itself (though no one was surprised) when results for the October 9th presidential election were prematurely released by the government’s Central Election Commission through a mobile app before actual voting began. The government insisted they were numbers calculated from the earlier election in 2008 despite the percentages failing to match up. President Aliev, who has ruled for over 10 years, went on to win 84.55 percent of the vote.

The patronage network holds Aliev’s rule together fueled by the massive influx of foreign direct investment into the energy sector. Azerbaijan’s politics function entirely on the profits generated from energy resources. Countries interested in seeing long-term stability in Azerbaijan will seek to develop alternative industries, generating a more widespread distribution of wealth and power that could potentially lead to a relaxing of the strongman dynamic pervading Azeri politics. Encouraging inclusive institutions could create political opportunities for a disenfranchised population in a gradual, and hopefully peaceful, way.

Energy investors will continue to flock to the largest country in the Caucuses region  for a quick and easy profit. But the global community would be wise to consider the longer term picture. Azerbaijan’s new role as a potential source of European energy makes stability in the country all the more important in future years. Azerbaijan’s economic potential is great, and with the facilitation of more inclusive economic and political institutions contributing to a more stable environment, the country has a shot at realizing its potential.

About Author

Eli Lovely

Eli is an analyst at Kroll Associates and has worked at the National Democratic Institute and the U.S. Department of State. He graduated Phi Beta Kappa from Wheaton College (MA) before earning his M.A. with distinction in Democracy and Governance Studies from Georgetown University. The views expressed on this site are Mr. Lovely’s and do not necessarily represent Kroll’s positions, strategies or opinions.